Suppose you are expecting to receive a million british pounds in six months,and you agree to a forward trade to exchange your pounds for dollars. If the spot exchange rate and the 150day forward rate in terms of dollars per pound are $1.5861=£1 and $1.5832=£1,respectively. How many dollars will you get in six months?Is the pound selling at a discount or a premium relative to the dollar??

Q: An investor has $10m to invest and has the following options: 1) depositing it in a US bank account…

A: Exchange rate: It is the value of a currency that is exchanged with another currency.

Q: If the current exchange rate is $1.70/£, the one-year forward exchange rate is $1.80/£, and the…

A:

Q: Suppose current one-year interest rate in Europe is 5%, whereas one-year interest rate in the U.S.…

A: Here,One year interest rate in Europe is 5%One year interest rate in US is 3%Current Spot Rate of…

Q: et us assume that IRP (interest rate parity) theory applies. The one-year nominal interest rate in…

A: Interest rate parity is a theory by which the fair forward rate of exchange is calculated.According…

Q: Suppose you are a U.S. investor who is planning to invest $845,000 in Mexico. Your Mexican…

A: DATA GIVEN: Investment amount  = $845,000 Investment gain in Mexico = 10.6% Exchange rate: Original…

Q: A currency dealer can borrow $1,400,000 (or the equivalent in euros) for one year. The one-year…

A: Arbitrage is a risk free opportunity available due to the mispricing of two currencies and profit…

Q: se that a French firm would like to have its stock available through an American Depository Receipt…

A: ADR is the issued by the US bank and are shares of foreign companies with a US equivalent value.

Q: tractor has a cost of $ 1m for a given specification. If the current $: £ rate is 1.3500:1, i) What…

A: Exchange rate (ER) is a value at which two different currencies are exchanged or traded. To make…

Q: Suppose a basket of goods in Paris costs €133 and the same basket purchased in New York costs $153.…

A: Inflation:The overall rate of increase in the cost of goods and services that results in a decline…

Q: er annum in the U.S. and 5.7% per annum in the U.K. Assume that you can borrow £1,000,000 or its…

A: In monetary terms, the exchange rate (also known as the foreign exchange rate, forex rate, or rate)…

Q: You sell 250,000 pesos short at the exchange rate of S(Peso/$)=18.9. Calculate your profit/loss if…

A: 1. Initial Sale (Short Sale) in Dollars:o Initial exchange rate S0 =18.9 pesos per dollar.o Amount…

Q: Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is…

A: Arbitrage profit Arbitrage is an investment strategy used by investors that involves buying and…

Q: Suppose that the annual interest rate of the Euro (€) is 2% and the annual interest rate of the US…

A: We know the interest rates on a pair of currency, and the spot and forward rates. We have to find if…

Q: Suppose the U.S. yield curve is flat at 5% and the euro yield curve is flat at 4%. The current…

A: We have,U.S. yield Curve = 5%Euro Yield Curve = 4%Exchange Rate = $1.25 per EuroAmount of Swap…

Q: The $/£ spot exchange rate is currently $1.50 per pound and is expected to fall to $1.42 per pound…

A: Return on investment: Return on investment is a measure of an investment's profitability. It…

Q: Suppose you, a German importer, expect to pay $1 million in 90 days for taking delivery of import…

A:

Q: Currently, the USD/MXN rate is 19.7800 and the six-month forward exchange rate is 20.1700. The…

A:

Q: Assume that the current price of a Big Mac in the United States today is $5.75.  Assume also that…

A: Big Mac in the United States = $5.75 Big Mac in Peru =10.50 sol USDPEN exchange rate = 3.7400 sol…

Q: Suppose you have INR 10millions that you can invest in for one year anywhere in the world without…

A: The one-year forward rate will depend upon the annual interest rates in the countries of the…

Q: Suppose the U.S. yield curve is flat at 4% and the euro yield curve is flat at 3%. The current…

A: The rate that is determined by the contracting parties of a swap is known as swap rate. The swap…

Q: Should you invest in the US or in Europe?

A: Uncovered Interest Rate Parity is based on the equation Forward RateSpot Rate=1+interest rate of…

Q: The Swiss Franc is trading at 1.1106 $/SFr, the euro is trading at 1.1268 $/euro. If you can buy or…

A: Arbitrary profit is the excess amount earned by using the mis-pricing in the market.

Q: ose that the current exchange rate between the Japanese yen (¥) and the U.S. dollar ($) is ¥100 =…

A: According to the purchase power parity the prices must be in equilibrium with each other and should…

Q: Blur Ltd, a UK importer, expects to make a payment of 1.8m Australian dollars (A$) for sure in one…

A: Hedging is a strategy to reduce the risk of price movement by creating an off-setting position in…

Q: Suppose that the current spot exchange rate is €2.62/OMR and the one year forward exchange rate is…

A: Arbitrage is a process of buying & selling assets/currency in different markets and making…

Q: Suppose the US yield curve is flat at 5% and the euro yield curve is flat at 4%. The current…

A: Cost Accounting: It is the process of collecting, recording, analyzing the cost, summarizing cost,…

Q: You are a currency trader specializing in the Japanese yen, and you are confident that the spot…

A: Forward contract is non standardized contract between two parties to buy or sell asset at a…

Q: The interest rates in the Eurozone and the United States are 6.04% and 3.44%, respectively.…

A: The Currency Carry Trade refers to the trading strategy used for earning profits by borrowing money…

Q: In the foreign exchange spot market, one Indian Rupee can buy 2.80 Malaysian Ringgit. The Malaysian…

A: Solution:- Foreign exchange rate means the price of one currency in terms of another currency.

Q: dollars today a contract allows you to buy 1000 British Pound at 1500 ve the option to sell British…

A: Contract - A legal binding agreement between two or more parties that establishes, outlines, and…

Q: Suppose the current exchange rate for the Polish zloty is Z3.37. The expected exchange rate in 5…

A: Purchasing power parity is defined as the metric, which is used by macro-economic analysts to…

Q: Suppose the risk free rate in pounds (£) is 5.71% and the risk free rate in US dollars ($) is 7.95%.…

A: The covered interest rate parity ensures the determination of future exchange rates without…

Q: A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one one-year…

A: According to the purchasing power parity the purchasing power must be same all over the world and…

Q: e exchange rate between the pound sterling and the dollar is currently $1.50 per pound, the dollar…

A: Exchange rate change over the period of time due to change in interest rate and profit can be…

Q: What would be the expected foreign exchange rate in a year from now if the current exchange rate is…

A: Exchange-Rate is price at which two national currencies can be exchanged for International…

Q: Suppose you are a euro-based Italian investor, and you are investing €10,400 to buy shares of a…

A: Initial Investment in Pounds = €10,400 / €1.30 per pound = £8,000Final Investment in Pounds =…

Q: Use the value-at-risk method to determine the maximum percentage loss of the Brazilian real over the…

A: Value at Risk (VaR) is a widely used risk management technique that quantifies the potential loss an…

Q: what actions do you need to take to use these rates to earn a profit? what is the expected dollar…

A: Forward Exchange Contract is the type of foreign currency transaction. It is an agreement between…

Q: In the foreign exchange spot market, one Indian Rupee can buy 2.80 Malaysian Ringgit. The Malaysian…

A:

Q: A Japanese exporter has a €1,000,000 receivable due in one year. To hedge the position, you will buy…

A: A put option is an instrument which provides its holder an option to sell an underlying asset on a…

Q: Suppose that your company will be receiving 30 million euros six months from now and the euro is…

A: Forward Contract: In a forward contract, two parties agree on a future date and price for the…

Q: Suppose a European call option to buy 1 euro for 1.40 CAD costs 0.08 CAD. The option maturity is in…

A: Strike price is 1.40 CAD Premium is 0.08CAD Forward rate is 1.50CAD Note: Ignoring time Value of…

Q: Suppose the exchange rate between U.S. dollars and British Pounds is $1.00 = 1.56 Pounds and the…

A: exchange rate between U.S. dollars and British Pounds = 1.56 Pounds per dollar exchange rate between…

Q: If the interest rate in Oman is 10% and in China is 15%. Current spot exchange rate is CNY16.59/OMR…

A: in covered interest arbitrage, you borrow in the currency which has lower interest rate and invest…

Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.