Question: Question Five (19 Marks) a. You are given the following quotes. Current Spot Exchange Rate USD/ZAR 17,000 - 17,500 Interest rates (percent per year): USD

Question Five (19 Marks) a. You are given the following quotes. Current Spot Exchange Rate USD/ZAR 17,000 - 17,500 Interest rates (percent per year): USD 3.0% - 3.5% ZAR 2.0% - 2.5% Calculate the USD/ZAR 1-year forward bid and ask exchange rate? Assume that the USD is the Domestic Currency (7 Marks) b. What is the percentage bid-ask spread in the rates calculated in (a)? (2 Marks) c. What are the factors that would determine the size of the Bid-Ask spread calculated in (a) above? Simply and explain list these factors (2 marks each). (10 Marks) Question Five (19 Marks) a. You are given the following quotes. Current Spot Exchange Rate USD/ZAR 17,000 - 17,500 Interest rates (percent per year): USD 3.0% - 3.5% ZAR 2.0% - 2.5% Calculate the USD/ZAR 1-year forward bid and ask exchange rate? Assume that the USD is the Domestic Currency (7 Marks) b. What is the percentage bid-ask spread in the rates calculated in (a)? (2 Marks) c. What are the factors that would determine the size of the Bid-Ask spread calculated in (a) above? Simply and explain list these factors (2 marks each). (10 Marks)

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