Please reference the site to answer the question or feel free to use your own (please reference link) on forward rates. https://www.investing.com/currencies/eur-usd-forward-rates

Looking at the EUR/USD forward rates, is the euro selling at a premium or discount? Why do you think that is? Does this mean the dollar is selling at a premium or discount?

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Irving HeathcoteLv2

28 Sep 2019

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Refer to Table 1 to answer the following questions: Is the Japanese yen selling at a premium or discount relative to the U.S. dollar? What is the per annum percent discount/premium for the 90-day forward yen? Your firm currently has $15 million available to invest in a 6-month Eurocurrency market deposit. Assume the exchange rates and London Eurocurrency deposit rates from Table 1 are available to you. Ignoring transaction costs, calculate the maturity value (in U.S. dollars) of deposits in either dollars or Swiss francs. Is there an advantage to depositing in the currency with the higher deposit rate? Based on the 90-day forward rates and deposit rates in Table 1, does interest rate parity appear to hold between the dollar and the Swiss franc?

TABLE 1: EXCHANGE RATES AND DEPOSIT RATES
			Eurocurrency Deposit Rates
Currency	Direct	Indirect	30-Day	90-Day	180-Day
Britain (Pound)	1.92000	0.52083	0.13375	0.12969	0.12563
30-Day Forward	1.91000	0.52356
90-Day Forward	1.89120	0.52877
180-Day Forward	1.86850	0.53519
Japan (Yen)	0.00753	132.80210	0.08500	0.08188	0.07813
30-Day Forward	0.00752	132.97870
90-Day Forward	0.00750	133.33330
180-Day Forward	0.00749	133.51130
Switzerland (Franc)	0.76420	1.30856	0.08063	0.08125	0.07938
30-Day Forward	0.76340	1.30993
90-Day Forward	0.76170	1.31285
180-Day Forward	0.75990	1.31596
U.S. Dollar			0.06563	0.06813	0.06813

Assume that the current spot rate is $1.0850/â¬ and the 3-month forward rate is $1.1100/â¬. Do all calculations for this problem for a three-month period, and you do not have to annualize. a. Does the foreign exchange market expect the Euro to appreciate or depreciate over the next three months? Explain why in an essay. You donât need to calculate or report the forward discount of premium for this part. b. Is the Euro selling at a 3-month forward discount or forward premium? Calculate and report the three-month forward premium (%) or discount (%) for the Euro, quoted to two decimals places (e.g. 3.85%). c. Suppose you expect the Euro to appreciate by 2.75% over the next three months and you want to speculate. What will the spot rate be in 3 months if you are correct? Should you take a long or short position on the 3-month Euro? Explain why in an essay. d. Using Word preferably, draw a fully labeled forward contract payoff diagram like on p. 131 in the textbook, but showing your position only (not the other side). If you go short, show only the short position. If you go long, show only the long position. Using Word: Click Insert at the top, then select Shapes and then Lines. e. If you are correct and you take a speculative position with â¬1,000,000, did you make or lose money? How much? Calculate your total profit or loss in USD. f. Suppose the Euro appreciates by 1.35% over the next three months. What will the spot rate be in 3 months? Will you make or lose money? How much? Calculate your total profit or loss in USD. g. Suppose now you expect the Euro to appreciate by 1.50% over the next three months and you want to speculate. What will the spot rate be in 3 months if you are correct? Should you take a long or short position on the 3-month Euro? Explain why in an essay. h. Draw a fully labeled forward contract payoff diagram like on p. 131 (preferably using Word), but showing your position only (not the other side). If you go short, show only the short position. If you go long, show only the long position. i. If you are correct and you take a position with â¬2,000,000, did you make or lose money? How much? Calculate your total profit or loss in USD. j. Suppose the Euro actually appreciates by 2.85% over the next three months. What will the spot rate be in 3 months? Will you make or lose money? How much? Calculate your total profit or loss in USD.

Spot and forward rates. Suppose the exchange rate for the Swiss franc is quoted as SF 1.50 in the spot market and SF in the 90-day forward market.

A. Is the dollar selling at a premium or discount relative to the franc?

B. Does the financial market expect the franc to strengthen relative to the dollar?

C. What do you suspect is true about relative economic conditions in the United States and Switzerland?

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