Question

28) 28) For a U.S.trader working in American quotes, if the forward price is higher than the spot price A) then you should buy at the spot, hold on to it and sell at the forward it's a built-in arbitrage. B) the currency is trading at a discount in the forward market. the currency is trading at a premium in the forward market. D) All of the options it really depends if you're talking American or European quotes. 29) 29) The forward market A) involves contracting today for the future purchase of sale of foreign exchange at the spot rate that will prevail at the maturity of the contract. B) involves contracting today for the right but not obligation to the future purchase of sale of foreign exchange at a price agreed upon today. C) involves contracting today for the future purchase of sale of foreign exchange at a price agreed upon today. D) none of the options 30) 30) The SF/$ spot exchange rate is SF1.25/$ and the 180 day forward exchange rate is SF1.30/S. The forward premium (discount) is A) the dollar trading at a 4% premium to the Swiss franc for delivery in 180 days. B) the dollar trading at a 4% discount to the Swiss franc for delivery in 180 days. the dollar trading at an 8% discount to the Swiss franc for delivery in 180 days. Dy the dollar trading at an 8% premium to the Swiss franc for delivery in 180 days. Bonus question (3 credits) 31) Answer questions based on excahnge rate quotations below. Deutsche Bank S:£ Credit Lyonnais S.€ Credit Agricole €/E $1.2000/£ $1.0500/€ €1.1308/ £ Ask $1.2500/£ $1.0510/€ €1.1905/£ 1). Is there an arbitrate opporunity? Explain why. 2). If the arbitrage opporunity exists, how can you make money?

Answer 1

The correct answer is A.

There is inbuilt arbitrage and one should buy the underlying asset