International Financial Management 2nd Edition by Geert Bekaert ,Robert Hodrick

Exercise 7

As a foreign exchange trader for JPMorgan Chase, you have just called a trader at UBS to get quotes for the British pound for the spot, 30-day, 60-day, and 90-day forward rates. Your UBS counterpart stated, "We trade sterling at $1.7745-50, 47 44, 88 81, 125 115." What cash flows would you pay and receive if you do a forward foreign exchange swap in which you swap into £5,000,000 at the 30-day rate and out of £5,000,000 at the 90-day rate What must be the relationship between dollar interest rates and pound sterling interest rates