Assignment #1

2. The following rates are quoted for € in terms of US dollar ($) and Australian dollar (A$) in New York:

$/€ = 1.0750 A$/$= 1.0250

(a) What are the implied quote for $ in terms of € and for A$ in terms of $?

(b) What is the implied cross rate for € (cost of buying one €) in terms of


3. Suppose a quote for euro (€) in New York is $1.0750-60.

a. What is the implied bid-ask quote for dollar in New York?

a. How much will it cost in $ to buy €100,000?

b. How much will you get $ if sell €100,000?

4. The Japanese yen (¥) changed its price in terms of dollars from $0.0905 to $0.0915 in 30 days.

(a) What is the percentage change in the price of ¥?

(b) What is the implied percentage change in the price of US$?

(c) State these changes in annualized percentage.

5. Suppose Dow Chemical receives quotes of $0.009369-71 for the yen and $0.03675-6 for the Taiwan dollar (NT$).

a. How many US$ will Dow Chemical receive from the sale of ¥50 million?

b. What is the US$ cost to Dow Chemical of buying ¥1 billion?

c. How many NT$ will Dow Chemical receive for US$500,000?

6. You see the following three month swap quote for C$: $0.9650-60 20-25. Using this information,

(a) calculate the three month outright forward rate for C$.

(b) calculate the mid-points of spot and three-month forward rates.

(c) using the mid-points of the spot and three-month forward rates, calculate the annualized forward premium/discount on C$

7. The forward rate on a currency depends on the spot exchange rate and the interest rate on each currency in the pair. Using the information below:

Sport rate ($/€) = $1.0850/€, i€ (interest rate on euro) = 4%, i$ (interest rate on $= 3%

(a) Calculate the three-month equilibrium forward rate for €.

(b) Show that the currency with a higher interest rate will sell at a forward discount.

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