A trader had just agreed to exchange $2 million US dollars for $1.55 million euros six months from today. This exchange is an example of a:
A) Spot Trade B) Currency Swap C) Forward Trade D) Floating Swap
Answer: Option C is correct.
Forward trade is an agreement between two parties to buy/sell an
asset at a fixed price (agreed upon today) and at a particular time
in future.
A trader had just agreed to exchange $2 million US dollars for $1.55 million euros six...
A US company has bought a machine worth 3 million euros from a German manufacturer with payment due in three months. The treasurer finds that DeutscheUSA (a fictitious name), a large commercial bank, bids euros for $1.5000 and offers euros for $1.5010 in three months’ time. He readily agrees and locks in that price. Suppose DeutscheUSA would like to hedge its trade. It finds that a German importer hoping to buy 2 million euros worth of computer parts from the...
A Canadian company with operations in Germany expects to purchase 20 million euros worth of raw materials in three months. The company is considering using a three month forward contract on 20 million euros to mitigate exchange rate risk. The forward rate is C$1.25/euro. Assume that the spot rate at expiration is C$1.30/euro. Find the company's profit/loss (in Canadian dollars) from their forward contract at expiration. Round intermediate steps to four decimals and your final answer to two decimals. Do...
The spot exchange rate today is 1.32 US Dollars for every Euro. Suppose the 6-month continuously compounded interest rates are 2% in the US and 3% in Europe. (a) What should the price of a currency futures contract deliverable in 6 months be? (b) Suppose that the futures price quoted in the market is 1.30. What would you do to profit from the situation? Is it an arbitrage? Hint: Long a futures contract (for the quoted futures price), lend out...
The current spot exchange rate is $1.50/€ and the three-month forward rate is $1.55/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation? A) Sell €1,000,000 forward for $1.50/€. B) Buy €1,000,000 forward for $1.55/€. C)...
Suppose today's exchange rate is $1.480/€. The three-month interest rates on dollars and euros are 4% per annum and 3% per annum, respectively. The three-month forward rate is $1.475/€. A foreign exchange advisory service has predicted that the euro will appreciate to $1.495/€ within three months.Which strategy using forward contracts would give you the highest profit in the above situation and what will be the profit from the strategy per € traded?Select one:a.Sell euros forward and buy them in the spot...
One company in the US knows that it will have to pay 30 million euros in three months. The current exchange rate is $ 1.08 per euro. a. At what risk is the company exposed? b. Explain how she could use forward contracts to hedge her report. c. Explain how she could use Futures to offset her report. d. If it had decided to hedge its position on forward contracts, when would it have made a profit and when had...
Derek Jones, a foreign exchange trader at Charles Schwab, can invest $1 million, or the foreign currency equivalent of the bank’s short-term funds, in a covered interest arbitrage with Japan. Using the following quotes, can Derek make a covered interest arbitrage profit? If so, show the steps and calculate the amount of profit in USD. Arbitrage funds available $1,000,000 Spot exchange rate (¥/$) ¥106.00/$ 6-month forward rate (¥/$) ¥103.50/$ US dollar 6-month interest rate 4% Japanese yen 6-month interest rate...
1. Jennifer Magnussen, a currency trader for Chicago-based Black River Investments, uses the following futures quotes on the British pound to speculate on the value of the British pound. British Pound Futures, US$/pound (CME) Contract = 62,500 pounds Open Maturity Open High Low Settle Change High Interest March 1.4246 1.4268 1.4214 1.4228 0.0032 1.4700 25,605 June 1.4164 1.4188 1.4146 1.4162 0.0030 1.4550 809 a) If Jennifer buys 3 March pound futures, and the spot rate at maturity is $1.4560/pound, what...
SSim-Tech, a US corporation has subsidiaries in six foreign countries. 11.SSim-Tech's foreign currency transactions in the swap market may simultaneously use _________ . average quarterly and year -end rates a spot purchase and forward sale spot sale and forward sale spot purchase and forward purchase none of the choices apply 12.SSim-Tech's foreign currency transactions in the forward market may use _________ rates. premium or discounts to the spot rate weighted average of the spot rate quarterly spot forward market none...
Copenhagen Covered (C). Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $4.954.95 million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. She is now evaluating the arbitrage profit potential in the same market after interest rates change. (Note that anytime the difference in interest rates does not exactly equal the forward premium, it must be possible to make CIA profit one way or another.) Arbitrage...