Global Finance Assignment

Hi, please answer all questions. Correspondingly, I give you assurance to provide whichever individual completes this a thumbs up immediately; thank you.

1. A contract is an agreement to buy or sell an asset. Discuss the difference between a spot and a forward contract on a currency in terms of their features. (10 points)

2 Suppose a quote for British pound ($/) in New York is $1.2550-70.

a. What is the implied quote for dollar (/$) in New York?

2. How much will it cost to buy 500,000?
3. How much will you get if sell 500,000?

(8 points)

3. If the reported exchange rate between the U.S. dollar and the Canadian dollar on a given day is C$1.3420/$ and it is changed to C$1.3380/$ after 10 days, what is the (annualized) percentage change in the value of $? What is the percentage change in the value of C$ against the $ over that period? (8 points)

4. The following are New York closing rates for C$/US$ and SFr/US$:

C$/$ = 1.3450; A$/$ = 1.2050

(a) Calculate the cross rate for C$ in terms of A$ (A$/C$).

(b) If the C$ was trading at A$0.8900 in Toronto at the same time, was there an arbitrage opportunity? If so, show how arbitrageurs with C$ could have profited from this opportunity and calculate the arbitrage profits in C$ and in percent. (15 points)

5. If you see a three-month swap quote for euro at a banks website as $1.1650-70 30-50, what is the outright three-month forward rate C$? (5 points)

5 (a) If interest rates in the U.S. and Canada are 5% and 6% respectively and the spot rate for dollar is C$1.2850, what is the 180-day equilibrium forward rate for US$? What is the forward premium/discount on US$?

(b) If the quoted (actual) forward rate for US$ is C$1.2950, is there an opportunity for covered interest arbitrage? (12 points)

7 The treasurer of a Canadian company has C$1,000,000 to invest for 90 days. A 90-day U.S. commercial paper offers a yield of 2.00 percent. The present exchange rate of C$ is $0.8980. If the Canadian company decided to invest in U.S. commercial paper, what is the expected (annual) yield if the expected exchange rate of CS at the end of 90 days is $0.8890? (You will find an illustrative example for this type questions in the course content folder) (12 points)