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Problem 6.1 Visiting Guatemala

Spot rate on the GTQ/ cross rate GTQ 10.5799/

Spot rate on the /reais cross rate 0.4462/R$

a. What is the Brai!ian reais/G"ate#a!an "eta! cross rate%

&. 'o( #an) "eta!s (i!! *saac +et ,or his reais%

Assumptions Values

-#o"nt o, reais ,ro# parents 4,500.00

Spot rate R$/ 10.5799

Spot rate /GTQ 0.4462

a. What is the !"G#$ %ross rate&

4.72

Reais/GTQ = R$/ x /GTQ

b. 'o( man) *uet+als (ill he get or his reais&

onertin+ )o"r reais into "eta!s 21,24-

*saac 3e eris !ies in Rio e aneiro. Whi!e attenin+ schoo! in Spain he #eets"an ar!os orero ,ro# G"ate#a!a. er the s"##er ho!ia) *saac ecies toisit "an ar!os in G"ate#a!a it) ,or a co"p!e o, (ee8s. *saacs parents +iehi# so#e spenin+ #one): R$4:500. *saac (ants to e;chan+e it to G"ate#a!an

"eta!s GTQ. 'e co!!ects the ,o!!o(in+ rates #onths =4.>7 =4.42

6 #onths =>.17 =>.20

12 #onths =2.=7 =2.91

24 #onths =1.79 =1.=2

a. What is the #i?rate ,or each #at"rit)%

&. What is the ann"a! ,or(ar pre#i"# ,or a!! #at"rities%

c. Which #at"rities hae the s#a!!est an !ar+est ,or(ar pre#i"#s%

Forward premium = ( Spot - Forward ) / (Forward) x (360 / days)

a. b.

al%ulate/ or(ar/

Perio/ 3a)s or(ar/ i/ ate As ate i/ate Premium

spot 85.41 85.46 85.4-500

1 month -0 85.02 85.05 85.0-500 5.6447

2 months 60 84.86 84.90 84.88000 -.92-2

- months 90 84.-7 84.42 84.-9500 4.9292

6 months 180 8-.17 8-.20 8-.18500 5.4096

12 months -60 82.87 82.91 82.89000 -.070-24 months 720 81.79 81.82 81.80500 2.2187

%. Whi%h maturities ha:e the smallest an/ largest or(ar/ premiums&

The 24 #onth ,or(ar rate has the s#a!!est pre#i"#: (hi!e the 1 #onth ,or(ar possesses the !ar+est pre#i"#.

@se the ,o!!o(in+ spot an ,or(ar &i?as8 rates ,or the apanese )en/@.S. o!!ar /$ e;chan+e rate ,ro# Septe#&er 16: 2010:to ans(er the ,o!!o(in+ "estions0.96/$

a. What is the R"ssian r"&!e/e"ro cross rate%

&. 'o( #an) r"&!es (i!! )o" o&tain ,or )o"r e"ros%

Assumptions Values

Be+innin+ )o"r trip (ith e"ros 15,000.00

1.-214

Spot rate R"&!es/$ -0.96

a< What is the ussian ruble"euro %ross rate&

40.91

b< 'o( man) rubles (ill )ou obtain or )our euros&

onertin+ )o"r e"ros into R"&!es 61-,658

n )o"r post?+ra"ation ce!e&rator) trip )o" ecie to trae! ,ro# A"nich:Ger#an) to Aosco(: R"ssia. o" !eae A"nich (ith 15:000 e"ros in )o"r(a!!et. Wantin+ to e;chan+e a!! o, these ,or R"ssian r"&!es: )o" o&tain the,o!!o(in+ "otes0.96/$

Spot rate on the )en/o!!ar cross rate C=4.02/$

a. What is the R"ssian r"&!e/e"ro cross rate%

&. 'o( #an) r"&!es (i!! )o" o&tain ,or )o"r e"ros%

Assumptions Values

Be+innin+ )o"r trip (ith r"&!es 450,000.00

Spot rate R"&!es/$ -0.96

Spot rate C/$ 84.02

a< What is the ussian ruble"euro %ross rate&

0.-685

Ru!es/" = Ru!es/$ # "/$

b< 'o( man) rubles (ill )ou obtain or )our euros&

onertin+ )o"r R"&!es into )en 1,221,177

-,ter spenin+ a (ee8 in Aosco( )o" +et an e#ai! ,ro# )o"r ,rien in apan. 'ecan +et )o" a rea!!) +oo ea! on a p!ane tic8et an (ants )o" to #eet hi# insa8a ne;t (ee8 to contin"e )o"r post?+ra"ation ce!e&rator) trip. o" hae

450:000 r"&!es !e,t in )o"r #one) po"ch. *n preparation ,or the trip )o" (ant toe;chan+e )o"r R"ssian r"&!es ,or apanese )en so )o" +et the ,o!!o(in+ "otes>.>F.

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Problem 6.7 loomberg urren%) ross ates

@se the ,o!!o(in+ cross rate ta&!e ,ro# B!oo#&er+ to ans(er the ,o!!o(in+ "estions.

urren%) ?@3 =? P GP ' A3 A?3 'F3

'F3 7.77>6 10.2976 0.092= 12.2=5> 7.9165 7.69=7 7.65=4

A?3 1.015 1.>446 0.0121 1.6042 1.0>>7 1.005> 0.1>06A3 1.0097 1.>>76 0.0121 1.595= 1.02=> 0.994= 0.1299

' 0.9=19 1.>00= 0.0117 1.5519 0.9725 0.9674 0.126>

GP 0.6>2= 0.=>=2 0.0076 0.6444 0.6267 0.62>4 0.0=14

P =>.7>5 110.92>= 1>2.>>4= =5.2751 =2.92=1 =2.4949 10.771=

=? 0.7549 0.009 1.19> 0.76== 0.7476 0.74>7 0.0971

?@3 1.>247 0.0119 1.5=04 1.01=4 0.9904 0.9=52 0.12=6

$uote al%ulate/

a. apanese )en per ?@ /ollar& 8-.7-5

b. ?@ /ollars per apanese )en& 0.0119 0.0119

%. ?@ /ollars per euro& 1.-247

/. =uros per ?@ /ollar& 0.7549 0.7549

e. apanese )en per euro& 110.92-8

. =uros per apanese )en& 0.009 0.0090

g. ana/ian /ollars per ?@ /ollar& 1.0097

h. ?@ /ollars per ana/ian /ollar& 0.9904 0.9904

i. Australian /ollars per ?@ /ollar& 1.015

H. ?@ /ollars per Australian /ollar& 0.9852 0.9852

. ritish poun/s per ?@ /ollar& 0.6-28

l. ?@ /ollars per ritish poun/& 1.5804 1.580-

m. ?@ /ollars per @(iss ran%& 1.0184

n. @(iss ran%s per ?@ /ollar& 0.9819 0.9819

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Problem 6.8 or(ar/ Premiums on the 3ollar"=uro C!"2>1 1.>2>2

1 month 1.>2>0 1.>2>1

2 months 1.>22= 1.>229

- months 1.>224 1.>227

6 months 1.>215 1.>21=

12 months 1.>194 1.>19=

24 months 1.>147 1.>176

a. What is the #i?rate ,or each #at"rit)%

&. What is the ann"a! ,or(ar pre#i"# ,or a!! #at"rities%

c. Which #at"rities hae the s#a!!est an !ar+est ,or(ar pre#i"#s%

Forward premium = ( Forward - Spot ) / (Spot) x (360 / days)

a< b%hange rate

iti&an8 "ote< @S$/po"n $/N 1.5900

1.2000

0.7550

*nitia! inest#ent ! 1,000,000.00

Path E1J ?@! to euros to poun/s to ?@!

Start (ith @S$ ! 1,000,000.00

onert to e"ros at e"tsche&an8 "ote 1,-24,50-.-1

onert e"ros to po"ns at EatWest "ote L1,10-,752.76

onert po"ns to @S$ at iti&an8 "ote ! 1,754,966.89

-r&itra+e +ain !oss ! 754,966.89

Path E2J ?@! to poun/s to euros to ?@!

Start (ith @S$ ! 1,000,000.00

onert to po"ns at iti&an8 "ote L628,9-0.82

onert po"ns to e"ros at EatWest "ote 754,716.98

onert e"ros to @S$ at e"tsche&an8 "ote ! 569,811.-2

-r&itra+e +ain !oss ! C4-0,188.6824/KEationa! Ban8 o, "(ait "otes Sa"i ri)a! per Ki&)an inar< S-R 1.9405/K

Barc!a) "otes @.S. o!!ar per Sa"i ri)a!< $0.2667/S-R

Assumptions =>%hange rate

iti&an8 "ote< @S$/inar $/K 1.9-24

Eationa! Ban8 o, "(ait "ote< ri)a! per inar S-R/K 1.9405

0.2667

*nitia! inest#ent ! 1,000,000.00

Path E1J ?@! to ri)als to /inars to ?@!

Start (ith @S$ ! 1,000,000.00

onert to ri)a!s at Barc!a) "ote @A -,749,95-.1-onert ri)a!s to inars at EatBan8 o, "(ait "ote K3 1,9-2,467.47

onert inars to @S$ at iti&an8 "ote ! -,7-4,-00.14

-r&itra+e +ain !oss ! 2,7-4,-00.14

Path E2J ?@! to /inars to ri)als to ?@!

Start (ith @S$ ! 1,000,000.00

onert to inars at iti&an8 "ote K3 517,491.20

onert inars to ri)a!s at EatBan8 o, "(ait "ote @A 1,004,191.68

onert ri)a!s to @S$ at Barc!a) "ote ! 267,787.79

-r&itra+e +ain !oss ! C7-2,212.21