Seminar 3
1. Go to https://www.investopedia.com/terms/s/spot-next.asp web site and read the FX forward
rates.
2. Read the specification of FX forward contract on the web site:
https://www.kdbbank.eu/forward-rate-quotation
3. As a currency trader, you see the following quotes on your computer screen:
Exch. Rate Spot 1-month 3-month 6-month
USD/EUR 1.0435/45 20/25 75/90 97/115
JPY/USD 98.75/85 12/10 25/19 45/35
USD/GBP 1.6623/33 30/35 95/110 120/130
a. What are the outright forward bid and ask quotes for the USD/EUR, JPY/USD and USD/GBP at the
1-month, 3-month and 6-month maturity?
b. Calculate the bid-ask spread in the forward market and compare it to bid-ask spread in the spot
market.
c. Suppose you want to swap out of $10,000,000 and into yen for 3 months. What are the cash flows
associated with the swap?
4. Intel is scheduled to receive a payment of ¥100,000,000 in 90 days from Sony in connection
with a shipment of computer chips that Sony is purchasing from Intel. Suppose that the current
exchange rate is ¥103/$, that analysts are forecasting that the jen will weaken by 1% over the
next 90 days, and that the standard deviation of 90-day forecasts of the percentage rate of
depreciation of the dollar relative to the yen is 4%.
a. Provide a qualitative description of Intel’s transaction exchange risk.
b. If Intel chooses not to hedge its transaction exchange risk, what is Intel’s expected dollar revenue?
c. If Intel does not hedge, what is the range of possible dollar revenues that incorporates 95.45% of
the possibilities?
5. Consider the following spot and forward rates for the yen–euro exchange rates:
Spot 30 days 60 days 90 days 180 days 360 days
146.30 145.75 145.15 144.75 143.37 137.85
Is the euro at a forward premium or discount? What are the magnitudes of the forward premiums or
discounts when quoted in percentage per annum for a 360-day year?