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Chapter 18 Foreign Exchange Market

The document shows various currency exchange rates for the Mexican peso, South African rand, and British pound against the US dollar and each other. It then asks the reader to: 1) Express the quotations as outright rates 2) Calculate the effective exchange rate to buy Mexican pesos three months forward with British pounds 3) Determine the rate that would be given for buying British pounds three months forward with delivery between one to three months The solutions show how to perform the currency conversions and calculations to arrive at the requested exchange rates.

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Niharika Mazumdar
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142 views2 pages

Chapter 18 Foreign Exchange Market

The document shows various currency exchange rates for the Mexican peso, South African rand, and British pound against the US dollar and each other. It then asks the reader to: 1) Express the quotations as outright rates 2) Calculate the effective exchange rate to buy Mexican pesos three months forward with British pounds 3) Determine the rate that would be given for buying British pounds three months forward with delivery between one to three months The solutions show how to perform the currency conversions and calculations to arrive at the requested exchange rates.

Uploaded by

Niharika Mazumdar
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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The computer screen in a foreign exchange trading room shows 1 the following : Currency Spot 1 3 month 6- month month

h 410-440 Mexican Peso 9.3850-80 70-80 210-215 South Africa rand 425-445 1100-1200 1825-1900 61200-300 Pound sterling 1.6320-35 40-34 105-95 190-170 The peso and rand are quoted against the US dollar US as the base currency. The sterling quote is with sterling as the base currency. a) Express all the above quotations as an outright basis. b) You want to buy Mexican pesos three months forward with pounds sterling. What is your effective exchange rate? c) You want to buy pound sterling three months forward with delivery option between one and three months. What rate will you get? Solution : a) The outsights: USD/MEP : 1 Month : 9.3920 9.3960 3 Month : 9.4060 9.4095 6 Month : 9.4260 9.4320 USD/SAR : 1 Month : 6.1625 6.1745 3 Month : 6.2300 6.2500 6 Month : 6.3025 - 6.3200 GBP/USD : 1 Month : 1.6280 1.6301 3 Month : 1.6130 1.6165 6 Month : 1.6130 1.6165 b) Three month forward rates are USD / MEP : 9.4060/ 9.4095 GBP /USD : 1.6215/1.6240 (GBP/MEP)bid = (GBP/USD)bid = (USD/MEP)bid = (1.6215)(9.4060) = 15.2518. c) The sterling is at a one month discount and a large three month discount. Since you are buying sterling with 1-3 month delivery option the bank will give you only one month discount. You will have tp pay $ 1.6301 per GBP.

the following rates are the quoted in the market: USD / JPY spot 121.2500/10 3- Months 119.5000/15 6- Months 117.8000/20 A customer wants an option forward contract to buy yen with settlement anytime between three months and six months. What is the rate the bank will quote? Solution: Yen is at premium at three and six months. The bank will take six months premium. For every dollar, the bank will give JPY 117.80

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