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The Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF).

Spot $ .8205
30-day forward $ .8510
90-day forward $ .8543
180-day forward $ .8590

a. Was the Swiss franc selling at a discount or premium in the forward market?

Premium
Discount

b. What was the 30-day forward premium (or discount)? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

30-day forward premium/discount %

c. What was the 90-day forward premium (or discount)? (Do not round intermediate calculations. Input your answer as a percent rounded to 2 decimal places.)

90-day forward premium/discount %

d. Suppose you executed a 90-day forward contract to exchange 130,000 Swiss francs into U.S. dollars. How many dollars would you get 90 days hence?

Dollars for Swiss francs

e. Assume a Swiss bank entered into a 180-day forward contract with Bankers Trust to buy $130,000. How many francs will the Swiss bank deliver in six months to get the U.S. dollars? (Round your answer to 2 decimal places.)

Swiss francs for dollars SF

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Casey Durgan
Casey DurganLv2
28 Sep 2019

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Related questions

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

Where can you find currency exchange rates and cross rates? At OANDA.com, the currency website. At this site's main page, click on the Currency Converter tab found at the top of the page and then below that, choose "Converter" to convert one currency into another.

Question 1: Several years ago the Wall Street Journal reported that the “indirect” exchange rate between the Canadian and US dollars was $0.9507 CAN per $1.00 US (or $0.9507 Canadian dollars per one US dollar). Using the OANDA website, identify the current “indirect” exchange rate between these two currencies in terms of $CAN per one $US?

Question 2: Has the U.S. dollar appreciated or depreciated relative to the Canadian dollar over this two-year time period? Explain your answer.

Question 3: Suppose the exchange rate between the U.S. dollar and the Swedish krona is 6.55 kronas per one U.S. dollar and the exchange rate between the British pound and the dollar is 0.641 pounds per U.S. dollar. Determine the cross rate between kronas and pounds. Your answer should be expressed as Swedish kronas per one British pound.

(B) Calculate the premium or discount of the British pound in the forward market where the spot rate is $1.982 US per one pound and the 90 day forward rate is $1.967 US per one pound. Be sure that you calculate the percent amount of the premium or discount AND also identify the amount as either a premium or discount.

(C) The spot rate of the Brazilian Real (BRL) is $0.44 US. The one-year U.S. interest rate is 5.75% and the one-year Brazilian interest rate is 9.52%.

Question 1: Assuming the existence of interest rate parity, determine the forward premium or discount of the Brazilian Real (be sure to identify whether it is a premium or a discount).

Question 2: Given the forward discount for the Real in question 1, now estimate the forward exchange rate of the Brazilian Real.

Question 3: Given interest rate parity, assume that the forward rate of the Brazilian Real is the same as the spot rate, one BRL = $0.44 US. Explain how U.S. investors could use covered interest arbitrage to lock in a higher yield than 5.75%.

Suppose you purchase a 9-year AAA-rated Swiss bond for par that is paying an annual coupon of 5 percent and has a face value of 1,900 Swiss francs (SF). The spot rate is U.S. $0.66667 for SF1. At the end of the year, the bond is downgraded to AA and the yield increases to 7 percent. In addition, the SF depreciates to U.S. $0.74074 for SF1.

a. What is the loss or gain to a Swiss investor who holds this bond for a year? % (Input the amount as a positive value. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

b. What is the loss or gain to a U.S. investor who holds this bond for a year? %

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