Stefven Putra

B1024181036

1. BANK SENTRUM (CB) expects the Singapore dollar to depreciate against the US dollar
from the spot rate of $ 0.43 to $ 0.40 within 45 days. The following interest rates for loans
and interbank loans are available:

Currency Lending Rate Borrowing Rate

US Dollar 7.0% 7.2%

Singapore Dollar 22.0% 24.0%

Centrum Bank is considering borrowing 10 million Singapore dollars on the interbank

market, and investing the funds in US dollars for 45 days.
a. Estimate the profit (or loss) that this strategy could bring? Should Centrum Bank
implement this strategy?
- Borrow S$10Million and convert to U.S. $:
S$ 10,000,000/$ 0.43 = $ 23,255,813.9535
- Investing the funds in US dollars for 45 days. The rate earned in U.S. for 45 days is:
7% x (45/360) = 0.875%
- Total amount accumulated in 45 days:
$ 23,255,813.9535 x (1 + 0.00875) =​ ​$ 23,459,302.3256
- Convert U.S.$ back to S$ in 45days
$ 23,459,302.3256 x $ 0.40 = S$ 9,383,720.93024
- The rate to be paid on loan is :
0.24 x (45/360) = 0.03
- Amount owed on S$ loan is:
S$ 10,000,000 x (1 + 0.03) = S$ 10,300,000
- This strategy results in a loss:
S$ 9,383,720.93024 - S$ 10,300,000 = ​- S$ 916,279.06976

Centrum Bank should not pursue this strategy.

b. If CB can borrow US dollars equivalent to that amount. How could he try to take
advantage of his expectations? Estimate the benefits this strategy could bring?

He is able to undertake to require advantage of his desire by raising the intrigued rate
from loans to approach the intrigued rate of borrow. Since the intrigued rate between loans
and borrows is so distant absent that when he employs this methodology, he is likely to lose.
On the off chance that he needs to create a benefit, he ought to utilize a methodology of
expanding the intrigued rate of the loans.

2. Mr. Johan bought the Canadian dollar call option for speculative purposes. Each option is
purchased at a premium of $ 0.03 per unit, with an exercise price of $ 0.70. Fill in the net
profit (or loss) per unit based on the possible listed spot rates and draw a contingency graph
on it?

Possible spot rate of Canadian Premium price Exercise price Net pr ofit
dollar on expiration date (loss) per unit
$.60 $ 0.03 $ 0.70 - $0.13

$.63 $ 0.03 $ 0.70 - $0.10

$.68 $ 0.03 $ 0.70 - $0.05

$.71 $ 0.03 $ 0.70 - $0.02

$.75 $ 0.03 $ 0.70 $0.02

$.79 $ 0.03 $ 0.70 $0.06

$.82 $ 0.03 $ 0.70 $0.09