On June 1, the 4-month interest rates in Switzerland and the United States were, respectively, 2% and 5% per annum with discrete compounding. The spot price of the Swiss franc was $0.8000/CHF. You took a short position of a CHF forward, CHF 100,000, delivery on October 1. One month later on July 1, three-month interest rates in Switzerland and the United States were, respectively, 2.5% and 4.5% per annum with discrete compounding. The spot exchange rate on the Swiss franc is $0.8020/CHF. On July 1, what is the value of your short position you entered on June 1? Assume the forward contract prices are arbitrage free prices.
Here a person takes short position on 100,000 CHF and on June 1 the spot price was 1 chf = $0.80 .
The 4 month difference in interest rate was 3% hence the forward rate of chfusd will be , 1chf = $0.808 at that point of time. And the value of short position. in terms of dollars is 808000.
After 1 month spot price becomes 1 chf = $0.8020 and the difference in 3 months interest rate becomes 2% , Switzerland interest rate being lower, the 3 months forward rate should be .
1chf = $0.8020 (1+(2%/4)) = $0.80601
Hence the value of short position at June 1 will be $0.80601*1000000 = 806010.
On June 1, the 4-month interest rates in Switzerland and the United States were, respectively, 2%...
If annualized nominal interest rates in the US and Switzerland are 12% and 8% respectively and the 90-day forward [one-year forward] rate for the Swiss franc is $1.0218, at what current spot rate for the Swiss frank will interest rate parity hold?
Suppose the current exchange rate between the United States and Switzerland is $1.02/Fr. The continuously compounded interest rate in the U.S. is 6%, while the continuously compounded Swiss franc-denominated interest rate is 9%. What is the price of a 5 -month prepaid forward contract on the Swiss franc? I need the step by step for the prepaid forward, option e. a.$1.0328/Fr b.$0.9700/Fr c.$1.0073/Fr d.$1.0590/Fr e.$0.9825/Fr
Interest rates in the United States are 1% and in Canada they are currently at 2%. The USD/CAD spot rate is 0.9881. You are offered a 12-month forward rate of 1.01. • Calculate the theoretical forward rate implied by Interest Rate Parity. • Is the forward contract relatively under-valued or overvalued? • What is the percentage return from engaging in Covered Interest Arbitrage? (Calculate as a percentage of your initial borrowing, accurate to 4 decimal places)
Assume that annual interest rates are 2 percent in the United States and 0.75 percent in UK. GW Bank can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates in either country. The spot rate is $1.40/GBP. a. If the forward rate is $1.45/ GBP, how could the bank arbitrage using a sum of $1 million? What is the spread earned (return on $1 million)? b. At what forward rate is this arbitrage eliminated?
On June 15, you took a long forward contract (delivery on December 15) on a dividend-paying stock when the stock price was $30 and the risk-free interest rate (with discrete compounding) is 12% per annum. The amount of the dividends were known as $0.75 on Aug 15, and Nov 15. It is now September 15 and the current stock price and the risk-free interest rate are, respectively, $31 and 10%. What is the value of your long forward position now?...
If the spot rate for the Swiss Franc is that 0.95 SF is equal to 1 US $, and the annual interest rate on fixed rate one-year deposits of SF is 0.15% and for US$ is 2.4%, what is the eight-month forward rate for one dollar in terms of SFs? Assuming the same interest rates, what is the 18- month forward rate for one SF in US$s? Is this an indirect or a direct rate? If the forward rate is...
ohn is a exchange banker in San Francisco. He is faced with the following market rates: Spot exchange rate: swiss F 0.9525/$. In other words, 1 US dollar = 0.9525 Swiss f 6 month US dollar interest rate = 0.80% per annum 6 month Swiss franc interest rate = 0.15% per annum 6 month forward exchange rate: = Sfr 0.9445/$ The maximum amount he can borrow and/or invest is $10,000,000 or its equivalent in Swiss francs. a) Is there a...
Assume that annual interest rates are 6 percent in the United States and 5 percent in Turkey. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $0.6553/Turkish lira (TL). a. If the forward rate is $0.6735/TL, how could the bank arbitrage using a sum of $6 million? What is the spread earned? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) b. At what forward...
Assume that annual interest rates are 8 percent in the United States and 7 percent in Turkey. An FI can borrow (by issuing CDs) or lend (by purchasing CDs) at these rates. The spot rate is $0.6661/Turkish lira (TL). a. If the forward rate is $0.6735/TL, how could the bank arbitrage using a sum of $9 million? What is the spread earned? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616)) Spread earned % b....
Suppose that the effective 6-month interest rate is 4.0 percent in the United States and the effective 6-month interest rate in Germany is 8 percent, and that the spot exchange rate is 1.60 USD/EUR and the forward exchange rate, with six-month maturity, is 1.58 USD/EUR. A. Clearly show whether IRP condition holds or not and explain whether there is an arbitrage opportunity for the home or the foreign investor or neither. B. Assume that an arbitrageur can borrow up to...