Question: QUESTION ONE (15 marks) You are a treasure analyst for your bank. One of your large corporate customers is interested in a currency hedge and

QUESTION ONE (15 marks) You are a treasure analyst for your bank. One of your large corporate customers is interested in a currency

QUESTION ONE (15 marks) You are a treasure analyst for your bank. One of your large corporate customers is interested in a currency hedge and approached your bank for quotes on forward rates. Using the following data, answer the questions below: Spot USD/JPY 116.00 3 Months DOLLAR Deposit Rate 4.50% p.a. 6 Months DOLLAR Deposit Rate 5.00% p.a. 3 Months YEN Deposit Rate 0.25% p.a. 6 Months YEN Deposit Rate 0.52% p.a. FRA Rate for Yen Nil D Your bank has a 3 month euro deposit of 10 million which was converted to STT to support the $TT liquidity position. The bank is concerned about currency risk. Briefly explain the risk to the bank and how can this be hedged using futures and options

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