You are a foreign exchange dealer. You see the following quote on your Reuter's screen:
a. The spot exchange rate of the Swedish krona is equal to 5.7 SKr per U.S. dollar. The three-month interest rates are 12% in SKr and 8% in dollars. What is the three-month forward exchange that you should quote?
b. In the language of currency traders would the Swedish krona be considered as "strong" or "weak" relative to the U.S. dollar?
c. Compute the annualized discount or premium on the dollar relative to the krona.
d. After a careful look at your screen, you discover that the spot exchange rate is really 5.7000-5.7015. The 12-month interest rates are 12¹/₄ -¹/₂% in SKr and 8¹/₄-¹/₂% in U.S. dollars. What should be the bid-ask quote on the one-year forward SKr/$ rate?
e. A Swedish exporting firm expects to be paid $1 million in three months. Please simulate the
SKr value of this payment if in three months, the spot exchange rate is equal to SKr/$ = 5 and
SKr/$ = 6. What would be the value of this payment if the firm had hedged against currency movements using the forward rate calculated in (a)?

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The Answer of You are a foreign exchange dealer. You see the following quote on your Reuter's screen: a. The spot exchange rate of the Swedish krona is equal to 5.7 SKr per U.S. dollar. The three-month interest rates are 12% in SKr and 8% in dollars. What is the three-month forward exchange that you should quote? b. In the language of currency traders would the Swedish krona be considered as "strong" or "weak" relative to the U.S. dollar? c. Compute the annualized discount or premium on the dollar relative to the krona. d. After a careful look at your screen, you discover that the spot exchange rate is really 5.7000-5.7015. The 12-month interest rates are 12¹/₄ -¹/₂% in SKr and 8¹/₄-¹/₂% in U.S. dollars. What should be the bid-ask quote on the one-year forward SKr/$ rate? e. A Swedish exporting firm expects to be paid $1 million in three months. Please simulate the SKr value of this payment if in three months, the spot exchange rate is equal to SKr/$ = 5 and SKr/$ = 6. What would be the value of this payment if the firm had hedged against currency movements using the forward rate calculated in (a)?

You Are a Foreign Exchange Dealer