The following information on interest rates and exchange rates is available to all with access to any of the finance data providers: Currency Euro GBP Yen Spot 2.0310/20 1.4890/00 154.20/30 1 Month 22/18 55/22 8/6 Currency AUD Euro GBP Yen 3 Months 64/54 160/156 33/27 6 Months 128/105 302/289 75/62 The quote for the British Pound (GBP) is AUD per GBP. For the Euro and Yen it is foreign currency per AUD. For most currency pairs, a point is 1/100th of 1% (i.e., 0.0001); the Japanese Yen currency pair is the only exception to this rule. Swap points for Japanese Yen currency pairs (e.g., Yen per AUD) are quoted to two decimal places only, so one point is 1/100. 12 Months 227/228 560/523 164/137 The table below provides bid and ask interest rates on the Australian dollar (AUD), the Euro, the British Pound (GBP) and the Japanese Yen. These rates are quoted on a per annum basis. 1 Month 3 Months 5.6785-5.8125 5.5000-5.6250 4.3125-4.4375 4.4375-4.5625 10.0625-10.1875 9.8750-9.9375 5.1250-5.1875 6 Months 12 Months 5.5000-5.6250 5.6250-5.7500 4.3125-4.4375 4.3125-4.4375 9.6875-9.7500 9.6250-9.7500 4.7500-4.8125 4.6250-4.6875 4.6250-4.6875 (a) An investor who runs a family office expects the Japanese Yen to depreciate against the Australian dollar by 7% over the next three months. How can this investor try to profit on these expectations through (a) transactions in the spot market only (b) forward market transactions only? Assume that there are no regulatory restrictions whatsoever. Calculate the profit (or loss) on a $1 million position for each of the two cases. What other factors should this investor incorporate in his decision when he considers using spot versus forward markets to execute the transaction?
The following information on interest rates and exchange rates is available to all with access to any of the finance data providers: Currency Euro GBP Yen Spot 2.0310/20 1.4890/00 154.20/30 1 Month 22/18 55/22 8/6 Currency AUD Euro GBP Yen 3 Months 64/54 160/156 33/27 6 Months 128/105 302/289 75/62 The quote for the British Pound (GBP) is AUD per GBP. For the Euro and Yen it is foreign currency per AUD. For most currency pairs, a point is 1/100th of 1% (i.e., 0.0001); the Japanese Yen currency pair is the only exception to this rule. Swap points for Japanese Yen currency pairs (e.g., Yen per AUD) are quoted to two decimal places only, so one point is 1/100. 12 Months 227/228 560/523 164/137 The table below provides bid and ask interest rates on the Australian dollar (AUD), the Euro, the British Pound (GBP) and the Japanese Yen. These rates are quoted on a per annum basis. 1 Month 3 Months 5.6785-5.8125 5.5000-5.6250 4.3125-4.4375 4.4375-4.5625 10.0625-10.1875 9.8750-9.9375 5.1250-5.1875 6 Months 12 Months 5.5000-5.6250 5.6250-5.7500 4.3125-4.4375 4.3125-4.4375 9.6875-9.7500 9.6250-9.7500 4.7500-4.8125 4.6250-4.6875 4.6250-4.6875 (a) An investor who runs a family office expects the Japanese Yen to depreciate against the Australian dollar by 7% over the next three months. How can this investor try to profit on these expectations through (a) transactions in the spot market only (b) forward market transactions only? Assume that there are no regulatory restrictions whatsoever. Calculate the profit (or loss) on a $1 million position for each of the two cases. What other factors should this investor incorporate in his decision when he considers using spot versus forward markets to execute the transaction?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:The following information on interest rates and exchange rates is available to all with access to any
of the finance data providers:
Currency
Spot
1 Month
3 Months
6 Months
12 Months
Euro
2.0310/20
22/18
64/54
128/105
227/228
GBP*
1.4890/00
55/22
160/156
302/289
560/523
Yen
154.20/30
8/6
33/27
75/62
164/137
The quote for the British Pound (GBP) is AUD per GBP. For the Euro and Yen it is
foreign currency per AUD. For most currency pairs, a point is 1/100th of 1% (i.e., 0.0001);
the Japanese Yen currency pair is the only exception to this rule. Swap points for Japanese
Yen currency pairs (e.g., Yen per AUD) are quoted to two decimal places only, so one
point is 1/100.
The table below provides bid and ask interest rates on the Australian dollar (AUD), the Euro, the
British Pound (GBP) and the Japanese Yen. These rates are quoted on a per annum basis.
Currency
1 Month
3 Months
6 Months
12 Months
AUD
5.6785-5.8125
5.5000-5.6250
5.5000-5.6250 5.6250-5.7500
Euro
4.4375-4.5625
4.3125-4.4375
4.3125-4.4375
4.3125-4.4375
GBP
10.0625-10.1875
9.8750-9.9375
9.6875-9.7500
9.6250-9.7500
Yen
5.1250-5.1875
4.7500-4.8125
4.6250-4.6875
4.6250-4.6875
(a) An investor who runs a family office expects the Japanese Yen to depreciate against the
Australian dollar by 7% over the next three months. How can this investor try to profit on these
expectations through (a) transactions in the spot market only (b) forward market transactions
only? Assume that there are no regulatory restrictions whatsoever.
Calculate the profit (or loss) on a $1 million position for each of the two cases. What other
factors should this investor incorporate in his decision when he considers using spot versus
forward markets to execute the transaction?
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