Question 1

Suppose the Brazilian Real is quoted at $0.9455-9510,and the Thai baht is quoted at $25.2513-3986.What is the direct quote for the Real in Bangkok?

Accepted Answer

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Question 2

The spot and 180-day forward rates for the euro are $1.3310 and $1.3402,respectively.The euro is said to be selling at a forward

Accepted Answer

The euro is selling at a forward premium of 1.4% because the forward rate ($1.3402) is higher than the spot rate ($1.3310). The percentage difference is calculated as [(1.3402 - 1.3310) / 1.3310] * 100 = 0.69%, which when rounded and considering the context, seems to be a mistake in calculation. The correct calculation should yield a result closer to 0.69%, indicating a potential error in the provided choices. However, based on the given options, the closest correct interpretation is a premium, not a discount, and the percentage should be recalculated or interpreted correctly from the given context.

Question 3

Suppose the direct quote for sterling in New York is $1.3110-5.Then the direct quote for dollars in London is:

Accepted Answer

To find the direct quote for dollars in London, we need to use the reciprocal of the direct quote for sterling in New York. Thus, the direct quote for dollars in London would be 1/1.3110-5, which equals 0.7625-8. Therefore, the best choice is C, which matches this calculation.

Question 4

Suppose one observed the following direct spot quotations in New York and London,respectively: $1.2500-60 and £.8000-50.Arbitrage profits per $1 million equal

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Question 5

Suppose it is January 1980 and the $/DM exchange rate is DM1 = $.35 and the DM/FF exchange rate is FF1 = DM.31.What is the FF/$ exchange rate?

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Question 6

Suppose the following direct quotes are received for spot and one-month French francs in New York: .1260-684-6.Then the outright 30-day forward quote for the French is:

Accepted Answer

To calculate the outright 30-day forward quote for French francs in New York, we need to add the points for one-month forward to the spot bid and ask prices.

For bid price: 
Spot bid price = 0.1260 
Points for one-month forward = -6 
Outright 30-day forward bid = 0.1260 - 0.0006 = 0.1254

For ask price: 
Spot ask price = 0.1268 
Points for one-month forward = +6 
Outright 30-day forward ask = 0.1268 + 0.0006 = 0.1274

Therefore, the outright 30-day forward quote for French francs is 0.1254-0.1274. The closest answer to this is B, which is 0.1264-0.1274.

Question 7

On December 3,2001,spot Japanese yen were sold at $0.008058.Suppose the 180-day forward Japanese yen was selling at a 1.91% annualized premium,what is the 180-day forward rate of the yen?

Accepted Answer

To calculate the 180-day forward rate, we first need to calculate the premium using the formula:
Premium = (1 + annualized premium rate)^(days/360) - 1
Here, days = 180 and annualized premium rate = 1.91%
Premium = (1 + 0.0191)^(180/360) - 1
Premium = 0.009556
Next, we can calculate the forward rate using the formula:
Forward rate = Spot rate x (1 + premium)
Forward rate = 0.008058 x (1 + 0.009556)
Forward rate = 0.008135
Therefore, the 180-day forward rate of the yen is 0.008135, which is option B.

Question 8

If the direct price of the dollar is DM2.5 in 1990 Frankfurt and transaction costs were .4% of the amount transacted,then the minimum- maximum direct quotes for the DM in New York were:

Accepted Answer

The minimum direct quote is the direct price minus the transaction costs, and the maximum direct quote is the direct price plus the transaction costs. So, the minimum direct quote is DM2.5 - 0.004 * DM2.5 = DM2.49, and the maximum direct quote is DM2.5 + 0.004 * DM2.5 = DM2.51. Converting these to US dollars, we get a minimum direct quote of $0.3984 and a maximum direct quote of $0.4016.

Question 9

If the direct price of the dollar is DKK5 in Copenhagen and transaction costs are .5%,then the minimum-maximum direct quotes for the Danish krone in New York are

Accepted Answer

The direct quote for the Danish krone in New York is the reciprocal of the direct price of the dollar in Copenhagen. With a direct price of DKK5, the reciprocal is 1/5 = 0.2000. Considering the transaction costs of 0.5%, the range is 0.2000 ± 0.0010, resulting in a minimum-maximum range of 0.1990-0.2010.

Question 10

Suppose the spot direct quotes for the Italian euro and Swedish krone are $1.2509-51 and $.1201-10,respectively.What is the direct quote for the Swedish krone in Milan?

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Question 11

Suppose the spot rate and forward rate for the British pound are $1.4248 and $1.4179 respectively.Assume the forward pound is selling at a 1.94% annualized discount,what is the number of days of the forward contract?

Accepted Answer

First, we need to calculate the forward price using the formula:
Forward Price = Spot Price x (1 + Interest Rate Differential)

Here, we are given that the forward pound is selling at a 1.94% annualized discount. This means that the interest rate differential is 1.94%.

So, Forward Price = $1.4248 x (1 + 1.94%) = $1.4523

Now, we can calculate the number of days in the forward contract using the formula:
Number of Days = (360 x (Forward Points / Spot)) / (Interest Rate Differential + 1)

Here, Forward Points = Spot Price - Forward Price = $1.4248 - $1.4523 = -0.0275
Spot = $1.4248 
Interest Rate Differential = 1.94%

Substituting these values, we get:
Number of Days = (360 x (-0.0275 / 1.4248)) / (0.0194 + 1) = 89.80

Rounding off, we get the answer as 90 days. Therefore, the best choice is C.

Question 12

Suppose the quote for euro is $.9865-92/€.The percent spread is

Accepted Answer

The percent spread is calculated as [(Ask - Bid) / Ask] * 100. Here, Ask = 0.9892 and Bid = 0.9865. So, the spread = (0.9892 - 0.9865) / 0.9892 * 100 = 0.27%.

Question 13

An American company that imports leather goods from England is most likely to be

Accepted Answer

When an American company imports goods from another country, they usually have to pay for those goods in the foreign currency, in this case, British pounds. Since the company is importing goods from England, they would need to exchange US dollars to British pounds to pay for those goods. If the value of British pounds were to decrease relative to the US dollar, that would mean that the American company would have to pay more dollars to purchase the same amount of British pounds, making the goods more expensive to import. Therefore, the American company would prefer a stronger British pound, which would allow them to purchase more goods for less money. This means that the American company would want to engage in short selling of pounds, which would result in a decrease in the value of pounds, allowing them to purchase more goods for less money.

Question 14

Suppose the pound sterling is selling for $1.62 and the buying rate for the Swiss franc is $0.71.Then the £/SFr cross rate is

Accepted Answer

To find the £/SFr cross rate, divide the rate of the pound sterling by the rate of the Swiss franc: $1.62 / $0.71 = 2.2817. Therefore, £1 = SFr 2.2817.

Question 15

It is 1985 and suppose the 90-day forward quotes on the DM and the French franc are $.4002-10 and $.1180-90,respectively.What is the direct 90-day forward quote for the franc in Frankfurt?

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Quiz 7: The Foreign Exchange Market