FORWARD RATES CALCULATIONS

(TABLE METHOD / SCHEDULE METHOD)

1
Spot USD / INR 45.8325 - 50 Spot USD / CHF 1. 1.2275 - 85
1 month forward 235-265 12-07
3 month forward 735-785 32-27
6 month forward 1545-1625 107-77
Calculate 1,3,6 month CHF/ INR quotation.
37.3481 - 37.3983 , 37.4498 - 37.5018 , 37.6696 - 37.8020

Spot USD / INR 45.8325 – 45.8350 Spot USD / CHF 1.2275 – 1.2285
1 month forward + 0.0235-0.0265 - 0.0012-0.0007
1 month forward USD / 45.8560 – 45.8615 1 month forward 1.2263 – 1.2278
INR USD / CHF

Spot USD / INR 45.8325 – 45.8350 Spot USD / CHF 1.2275 – 1.2285
3 month forward + 0.0735-0.0785 - 0.0032-0.0027
3 month forward 45.9060-45.9135 3 month forward 1.2243 – 1.2258
USD / INR USD / CHF

Spot USD / INR 45.8325 – 45.8350 Spot USD / CHF 1.2275 – 1.2285
6 month forward + 0.1545-0.1625 - 0.0107-0.0077
6 months forward 45.9870-45.9975 6 months forward 1.2168-1.2208
USD / INR USD / CHF
 1 month forward USD / INR 45.8560 – 45.8615
1 month forward USD / CHF 1.2263 – 1.2278
(CHF/INR)b = (CHF/USD)b X (USD/INR)b (CHF/INR)a = (CHF/USD)a X (USD/INR)a
= 1 / (USD/CHF)a X (USD/INR)b = 1 / (USD/CHF)b X (USD/INR)a
= 1 / 1.2278 X 45.8560 = 1 / 1.2263 X 45.8615
= 37.3481 = 37.3982
1 MONTH FORWARD CHF/INR 37.3481 – 37.3982
3 month forward USD / INR 45.9060-45.9135
3 month forward USD / CHF 1.2243 – 1.2258
(CHF/INR)b = (CHF/USD)b X (USD/INR)b (CHF/INR)a = (CHF/USD)a X (USD/INR)a
= 1 / (USD/CHF)a X (USD/INR)b = 1 / (USD/CHF)b X (USD/INR)a
= 1 / 1.2258 X 45.9060 = 1 / 1.2243 X 45.9135
= 37.4498 = 37.5018
3 MONTH FORWARD CHF/INR 37.4498 - 37.5018
6 months forward USD / INR 45.9870-45.9975
6 months forward USD / CHF 1.2168-1.2208
(CHF/INR)b = (CHF/USD)b X (USD/INR)b (CHF/INR)a = (CHF/USD)a X (USD/INR)a
= 1 / (USD/CHF)a X (USD/INR)b = 1 / (USD/CHF)b X (USD/INR)a
= 1 / 1.2208 X 45.9870 = 1 / 1.2168 X 45.9975
= 37.6696 = 37.8020
6 MONTH FORWARD CHF/INR 37.6696 - 37.8020
2
Spot GBP/ USD 1.6890 - 00 Spot USD / CAD 1.1292 – 02
1 month forward 15-05 05-10
3 month forward 27-12 12-20
6 month forward 37-17 22-32
Calculate 1,3,6 month GBP / CAD quotation.
1.9064 - 1.9112, 1.9062 - 1.9121, 1.9067 - 1.9135

Spot GBP/ USD 1.6890 – 1.6900 Spot USD / CAD 1.1292 – 1.1302
1 month forward - 0.0015-0.0005 + 0.0005-0.0010
1 month forward 1.6875 – 1.6895 1 month forward 1.1297 – 1.1312
GBP/ USD USD / CAD

Spot GBP/ USD 1.6890 – 1.6900 Spot USD / CAD 1.1292 – 1.1302
3 month forward – 0.0027-0.0012 + 0.0012-0.0020
3 month forward 1.6863 – 1.6888 3 month forward 1.1304 – 1.1322
GBP/ USD USD / CAD

Spot GBP/ USD 1.6890 – 1.6900 Spot USD / CAD 1.1292 – 1.1302
6 month forward - 0.0037-0.0017 + 0.0022-0.0032
6 month forward 1.6853 – 1.6883 6 month forward 1.1314 – 1.1334
GBP/ USD USD / CAD
 1 month forward GBP/ USD 1.6875 – 1.6895
1 month forward USD / CAD 1.1297 – 1.1312
(GBP/CAD)b = (GBP/USD)b X (USD/CAD)b (GBP/CAD)a = (GBP/USD)a X (USD/CAD)a
= 1.6875 X 1.1297 = 1.6895 X 1.1312
= 1.9064 = 1.9112
1 MONTH FORWARD GBP/CAD 1.9064 – 1.9112
3 month forward GBP/ USD 1.6863 – 1.6888
3 month forward USD / CAD 1.1304 – 1.1322
(GBP/CAD)b = (GBP/USD)b X (USD/CAD)b (GBP/CAD)a = (GBP/USD)a X (USD/CAD)a
= 1.6863 X 1.1304 = 1.6888 X 1.1322
= 1.9062 = 1.9121
3 MONTH FORWARD GBP/CAD 1.9062 – 1.9121
6 month forward GBP/ USD 1.6853 – 1.6883
6 month forward USD / CAD 1.1314 – 1.1334
(GBP/CAD)b = (GBP/USD)b X (USD/CAD)b (GBP/CAD)a = (GBP/USD)a X (USD/CAD)a
= 1.6853 X 1.1314 = 1.6883 X 1.1334
= 1.9067 = 1.9135
6 MONTH FORWARD GBP/CAD 1.9067 – 1.9135
3
Spot EUR/8.0215
SEK - 90 Spot EUR/ CAD 1.3715 - 25
1 month forward 425-475 15-25
3 month forward 1425-1575 35-55
Calculate 42 days, 72 days forward CAD / SEK Quotation.
5.8767 - 5.8967 , 5.9066 - 5.9324

SWAP POINTS FOR 12 DAYS

EUR/SEK EUR/CAD
BID ASK BID ASK

= 200 = 220 =4 =6

Spot EUR/8.0215
SEK – 8.0290 Spot EUR/ CAD 1.3715 – 1.3725
30 Days Premium + 0.0425 – 0.0475 + 0.0015 – 0.0025
30 Days EUR/SEK 8.0640 – 8.0765 30 Days EUR/CAD 1.3730 – 1.3750
12 Days Premium + 0.0200 – 0.0220 + 0.0004 – 0.0006
42 Days EUR/SEK 8.0840 – 8.0985 42 Days EUR/CAD 1.3734 – 1.3756

42 Days EUR/SEK 8.0840 – 8.0985

42 Days EUR/CAD 1.3734 – 1.3756
42 Days CAD / SEK
(CAD/SEK)b = (CAD/EUR)b X (EUR/SEK)b (CAD/SEK)a = (CAD/EUR)a X (EUR/SEK)a
= 1 / (EUR/CAD)a X (EUR/SEK)b = 1 / (EUR/CAD)b X (EUR/SEK)a
= 1 / 1.3756 X 8.0840 = 1 / 1.3734 X 8.0985
= 5.8767 = 5.8967
42 Days CAD / SEK 5.8767 – 5.8967
 SWAP POINTS FOR 42 DAYS
EUR/SEK EUR/CAD
BID ASK BID ASK

= 700 = 770 = 14 = 21

Spot EUR/8.0215
SEK – 8.0290 Spot EUR/ CAD 1.3715 – 1.3725
30 Days Premium + 0.0425 – 0.0475 + 0.0015 – 0.0025
30 Days EUR/SEK 8.0640 – 8.0765 30 Days EUR/CAD 1.3730 – 1.3750
42 Days Premium + 0.0700 – 0.0770 + 0.0014 – 0.0021
72 Days EUR/SEK 8.1340 – 8.1535 72 Days EUR/CAD 1.3744 – 1.3771

72 Days EUR/SEK 8.1340 – 8.1535

72 Days EUR/CAD 1.3744 – 1.3771
72 Days CAD / SEK
(CAD/SEK)b = (CAD/EUR)b X (EUR/SEK)b (CAD/SEK)a = (CAD/EUR)a X (EUR/SEK)a
= 1 / (EUR/CAD)a X (EUR/SEK)b = 1 / (EUR/CAD)b X (EUR/SEK)a
= 1 / 1.3771 X 8.1340 = 1 / 1.3744 X 8.1535
= 5.9066 = 5.9324
72 Days CAD / SEK 5.9066 – 5.9324
4
Spot USD
48.0325
/ INR - 75 Spot USD / CHF 1.2293 - 03
1 month forward 185-215 13-08
3 month forward 785-865 43-28
6 month forward 1835-2065 103-73
Calculate 1,3,6 month, 42 days, 108 days CHF / INR quotation.
39.0817 - 39.1360, 39.1943- 39.2849, 39.4244 - 39.5767
39.1042 - 39.1657, 39.2402- 39.3430

42 days
SWAP POINTS OF 30 DAYS
SWAP POINTS OF 12 DAYS
FM – FORWARD MARGIN
SM – STANDARD MATURITY

SWAP POINTS FOR 12 DAYS

USD / INR USD/CHF
BID ASK BID ASK

= 120 = 130 =6 =4
 Spot USD
48.0325
/ INR– 48.0375 Spot USD / CHF 1.2293 – 1.2303
30 DAYS FORWARD + 0.0185 – 0.0215 - 0.0013 – 0.0008
SWAP POINTS
30 DAYS FORWARD 48.0420 – 48.0590 30 DAYS FORWARD 1.2280 – 1.2295
USD / INR USD / CHF

12 DAYS FORWARD + 0.0120 – 0.0130 - 0.0006 – 0.0004

SWAP POINTS
42 DAYS FORWARD 48.0540 – 48.0720 42 DAYS FORWARD 1.2274 – 1.2291
USD / INR USD / CHF
42 DAYS FORWARD USD / INR 48.0540 – 48.0720
42 DAYS FORWARD USD / CHF 1.2274 – 1.2291
42 DAYS FORWARD CHF/INR
(CHF/INR)B = (CHF/USD)b X (USD/INR)b (CHF/INR)a = (CHF/USD)a X (USD/INR)a
= 1 / (USD/CHF)a X (USD/INR)b = 1 / (USD/CHF)b X (USD/INR)a
= 1 / 1.2291 X 48.0540 = 1 / 1.2247 X 48.0720
= 39.0967 = 39.1657
42 DAYS FORWARD CHF/INR 39.0967 – 39.1657

3 month forward 785-865 43-28

6 month forward 1835-2065 103-73
 SWAP POINTS FOR 18 DAYS
USD / INR USD/CHF
BID ASK BID ASK

= 210 = 240 = 12 =9

Spot USD
48.0325
/ INR– 48.0375 Spot USD / CHF 1.2293 – 1.2303
90 days forward + 0.0785 - 0.0865 - 0.0043-0.0028
90 days forward 48.1110 – 48.1240 90 days forward 1.2250 – 1.2275
USD / INR USD / CHF
18 days forward SWAP + 0.0210 – 0.0240 - 0.0012 – 0.0009
108 days forward 48.1320 – 48.1480 108 days forward 1.2238 – 1.2266
USD / INR USD / CHF
108 days forward USD / INR 48.1320 – 48.1480
108 days forward USD / CHF 1.2238 – 1.2266
108 days forward CHF/INR
(CHF/INR)B = (CHF/USD)b X (USD/INR)b (CHF/INR)a = (CHF/USD)a X (USD/INR)a
= 1 / (USD/CHF)a X (USD/INR)b = 1 / (USD/CHF)b X (USD/INR)a
= 1 / 1.2266 X 48.1320 = 1 / 1.2238 X 48.1480
= 39.2402 = 39.3430
108 days forward CHF/INR 39.2402 - 39.3430
5
Spot USD / SEK
6.0025 - 25 Spot SEK/ INR 7.4925 -75
1 month forward 125-105 100-120
3 month forward 250-200 250-320
6 month forward 750-700 300-350
Calculate 1, 3, 6 month, 73 days, 146 days USD / INR quotation.
44.9400 - 45.0720, 44.9359 - 45.1205, 44.5896 - 44.7619, 44.9370 - 45.1067, 44.6836 - 44.8758
 SWAP POINTS CALCULATIONS

FB  SB VCD BCL Forward Bid = Spot Bid, Variable Currency Deposit, Base Currency Lending

FA  SA VCL BCD Forward Bid = Spot Ask, Variable Currency Lending, Base Currency Deposit

Q1
Spot USD / CHF 1.2295 – 1.2305
CHF Int. rate 1.00 - 1.25 % p.a.
USD Int. Rate 2.25 - 2.50 % p.a.
Calculate 6 months Fwd USD / CHF quotation
VARIABLE CURRENCY  CHF Deposit = 1, Lending = 1.25
BASE CURRENCY  USD Deposit = 2.25, Lending = 2.5

Solution:

Fb = 1.2203 Fa = 1.2244

Swap Points / Forward Margins

Bid Side = FB – SB Ask Side = FA – SA
= 1.2203 – 1.2295 = 1.2244 – 1.2305
= - 0.0092 = - 0.0061
92 - 61

Q2

Spot USD / CAD 1.1210 - 20

CAD int.rate 3.00 - 3.25 % p.a.

USD int. Rate 2.25 - 2.50 % p.a.

Calculate 3 Months Fwd USD / CAD quotation

FB = SB X FA = SA X
= 1.1210 X = 1.1220 X

= 1.1210 X = 1.1220 X
= 1.1210 X = 1.1220 X
= 1.1210 X = 1.1220 X
= 1.1224 = 1.1248
3 month forward USD / CAD 1.1224 – 1.1248
Bid Side = Fb – Sb = 1.1224 – 1.1210 =0.0014 Ask Side = Fa – Sa = 1.1248 – 1.1220 = 0.0028
3 month Swap Points 14 – 28
Q3
GBP / INR 78.3525 - 78.3575
3 Month Fwd 78.4980 - 78.6005
INR Deposit Interest Rate 4% p.a.
GBP Deposit Interest Rate 3% p.a.
Calculate Arbitrage Free Lending Rates

FB = SB X FA = SA X
78.4980 = 78.3525 X 78.6005 = 78.3575 x
78.4980 / 78.3525 = 78.6005 / 78.3575 =
78.4980 / 78.3525 = 78.6005 / 78.3575 =
78.4980 / 78.3525 = 78.6005 / 78.3575 =
400 + Rb = 404 / 78.4980 x 78.3525 78.6005 / 78.3575 x 403 = 400 + Rv
Rb = 404 / 78.4980 x 78.3525 – 400 78.6005 / 78.3575 x 403 – 400 = Rv
Rb = 3.25% Rv = 4.25%
Q4
USD / AUD 1.1885 - 1.1895
6 months Fwd swap 15 - 44
AUD Deposit Interest Rate 3.00 % p.a.
USD Deposit Interest Rate 2.50% p.a.
Calculate Arbitrage Free Lending Rates.
Solution:
USD / AUD 1.1885 - 1.1895
6 months Fwd Premium +0.0015 – 0.0044
6 months Fwd USD / AUD 1.1900 – 1.1939

200 + Rb = 203 x
Rb = 203 x
Rb = 2.7441%

Rvcl = 3.2491%
Q6
Spot USD/ INR 44.8350 - 00
USD Int. Rate 2.35 - 2.60 % p.a.
INR Int. Rate 4.00 - 4.25 % p.a.
Calculate 3 months fwd quotation & swap points.

FB = S B X FA = SA X
= 44.8350 X = 44.8400 X
= 44.8350 X = 44.8400 X
= 44.8350 X = 44.8400 X
= 44.8350 X = 44.8400 X
= 44.9909 = 45.0517

3 month forward USD / INR 44.9909 – 45.0517

Bid Side = Fb – Sb = 4 44.9909 – 44.8350 = 0.1559 Ask Side = Fa – Sa = 45.0517 – 44.8400 = 0.2117
3 month Swap Points 1559 – 2117

Q8
Spot USD/ CAD 1.1098 – 1.1108
CAD int. Rate 3.1250 - 3.3750 % p.a.
USD int. rate 2.50 - 2.75 % p.a.
Calculate 146 days forward quote & swap points.
 Fb = 1.1114 Fa =1.1146

Swap Points
Bid Side: = FB – SB Ask side = FA – SA
= 1.1114 – 1.1098 = 1.1146 – 1.1108
= 0.0016 = 0.0038
Swap Points 16 – 38
 SWAP POINTS CALCULATIONS
FB  SB VCD BCL Forward Bid = Spot Bid, Variable Currency Deposit, Base Currency Lending
FA  SA VCL BCD Forward Bid = Spot Ask, Variable Currency Lending, Base Currency Deposit
1 Spot USD / CHF 1.2295 - 05
CHF Int. rate 1.00 - 1.25 % p.a.
USD Int. Rate 2.25 - 2.50 % p.a.
Calculate 6 months Fwd USD / CHF quotation
1.2204 - 1.2244
Calculate 6 months Fwd Margin / Swap Points
91 – 61
3 GBP / INR 78.3525 - 78.3575
3 Month Fwd 78.4980 - 78.6005
INR Deposit Interest Rate 4% p.a.
GBP Deposit Interest Rate 3% p.a.
Calculate Arbitrage Free Lending Rates
GBP 3.2512 %
INR 4.2498%
5 Spot EUR / CHF 1.5735 - 1.5745
EUR Int. Rate 2.25 - 2.50% p.a.
CHF Int. Rate 1.00 - 1.25 % p.a.
Calculate 6 Months Fwd Quotation & Swap
Points.
EUR / CHF 1.5618 - 1.5667
Swap points 117 - 78
7 Spot GBP / AUD 1.8755 - 65
AUD int. Rate 2.65 - 2.90 % p.a.
GBP int.rate 3.20 - 3.45 % p.a.
Calculate 60 Days Fwd Quotation & Swap Points
GBP / AUD 1.8730 - 1.8756
Swap points 25 – 9
9 Spot USD/ CHF 1.2360 - 1.2370
73 days fwd 1.2325 - 1.2345
2 Spot USD / CAD 1.1210 - 20
CAD int.rate 3.00 - 3.25 % p.a.
USD int. Rate 2.25 - 2.50 % p.a.
Calculate 3 Months Fwd USD / CAD quotation
1.1224 - 1.1248
Calculate 3 Months Fwd Margin / Swap Points
14 - 28
4 USD / AUD 1.1885 - 1.1895
6 months Fwd swap 15 - 44
AUD Deposit Interest Rate 3.00 % p.a.
USD Deposit Interest Rate 2.50% p.a.
Calculate Arbitrage Free Lending Rates.
USD : 2.7441 %
AUD : 3.2491 %
6 Spot USD/ INR 44.8350 - 00
USD Int. Rate 2.35 - 2.60 % p.a.
INR Int. Rate 4.00 - 4.25 % p.a.
Calculate 3 months fwd quotation & swap
points.
USD / INR 44.9909 - 45.0517
Swap points 1559 -2117
8 Spot USD/ CAD 1.1098 -08
CAD int. Rate 3.1250 - 3.3750 % p.a.
USD int. rate 2.50 - 2.75 % p.a.
Calculate 146 days forward quote & swap
points.
USD / CAD 1.1114 - 1.1146
Swap points 16 – 38
10 Spot GBP/ SEK 9.0335 - 9.0385
4 months fwd swap 73 - 224
 USD lending interest rate 2.50 % p.a.
CHF lending interest rate 1.25 % p.a.
Calculate arbitrage free deposit rates
USD = 2.2650% p.a., CHF = 1.0770 % p.a.
PRACTICE: 5, 6, 7, 8, 9, 10
SEK deposit rate 3.50% p.a.
GBP deposit rate 3.00% p.a.
Calculate arbitrage free lending rate.
SEK = 3.75% p.a., GBP = 3.25 % p.a.

60  360

146  365

73 X 1 = 73

73 X 2 = 146

73 X 3 = 219

73 X 4 = 292

73 X 5 = 365
 ANNUALIZED FORWARD MARGIN – AFM

Q1 Q2
Spot USD / INR 54.8165
Spot GBP / USD 1.5152
3 Months Fwd 55.1300
Calculate 3 months AFM & interpret the result. 138 days fwd 1.5128

= 2.2876% = - 0 .4189%

Q3 Q4
Spot GBP/ USD 1.6815
AFM discount = 1% Spot USD / MXN 12.3325
Calculate 3 months fwd GBP/ USD rate
AFM premium = 3.25 %
Calculate 6 months fwd USD / MXN rate

F = 1.6773
3 M. Fwd. GBP/USD 1.6773 F = 12.5329
6 M .Fwd USD / MXN 12.5329

Q5 Q6
146 days USD / AUD 1.1673 60 days forward USD/ CHF 0.9508
AFM = -1.25% AFM = - 0.75%
Calculate spot USD / AUD rate
Calculate spot USD / CHF Rate
248.75 S = 291.53
S = 0.9520
S = 291.53 / 248.75
Spot USD / CHF 0.9520
S = 1.1732
Spot USD / AUD 1.1732
 ANNUALIZED FORWARD MARGIN – AFM

1. It is the nominal arithmetical difference between variable & base currency interest rate (Rv- Rb)
2. Unless specified AFM is to be calculated on spot & fwd ask rate.
AFM is positive Base Currency is at Forward Premium
AFM is negative Base Currency is at Forward Discount
AFM is zero Neither Premium Nor Discount

1 Spot USD / INR 54.8165 2 Spot GBP / USD 1.5152

3 Months Fwd 55.1300 138 days fwd 1.5128
Calculate 3 months AFM & interpret the result. Calculate 138 days AFM & interpret the result.
AFM = 2.2876% AFM = - 0 .4189%
3 Spot GBP/ USD 1.6815 4 Spot USD / MXN 12.3325
AFM discount = 1% AFM premium = 3.25 %
Calculate 3 months fwd GBP/ USD rate Calculate 6 months fwd USD / MXN rate
3 M. Fwd. GBP/USD 1.6773 6 M .Fwd USD / MXN 12.5329
5 146 days USD / AUD 1.1673 6 60 days forward USD/ CHF 0.9508
AFM = -1.25% AFM = -0.75%
Calculate spot USD / AUD rate Calculate spot USD / CHF Rate
Spot USD / AUD 1.1732 Spot USD / CHF 0.9520
 COVERED INTEREST ARBITRAGE

If 1 > 2 Borrow Variable Currency 

If 2 > 1 Borrow Base Currency 
Amount payable = P x (1+RT)
Arbitrage = Amount Receivable - Amount Payable

Q1

Spot USD / CAD 1.1210

3 Months Fwd 1.1260
CAD interest rate 3% p.a.
USD interest rate 2% p.a.
Answer

= = 0.0045  Factor 1
= 0.0025  Factor 2
Factor 1 > Factor 2
Assume borrowing CAD 1 Million

Amount payable = P x (1+RT)

= 1,000,000 x
= 1,000,000 x
= 1,000,000 x
= 1,000,000 x
= 1009483
= 1,000,000 x
= 1007500
Arbitrage = Amount Receivable - Amount Payable
= 1009483 – 1007500
= CAD 1983 PER CAD 1 MILLION

Q2

Spot USD / CHF 1.2283

6 months fwd 1.2218
CHF interest rate 1% p.a.
USD interest rate 2% p.a.
= = - 0.0053  factor 1
= = - 0.0050  factor 2
Factor 2 > Factor 1
Borrow USD 1 million
Amount Payable = P x (1 + RT) Amount Receivable = P x (1 + RT) x
= 1,000,000 = 1,000,000 X
= 1,000,000 = 1,000,000 X
= 1,000,000 = 1,000,000 X
= 10,10,000 = 1010347
Arbitrage = Amount Receivable - Amount Payable
= 1010347 – 10,10,000
= 347
= USD 347 per USD 1 Million
Q3
Spot EUR / SEK 7.0035
120 days fwd 7.0400
SEK interest rate 3%
EUR interest rate 1.2%

 Factor 1

= 0.0060  Factor 2
Factor 2 > Factor 1

Borrow Base Currency

Assume capital EUR 1 million

Amount payable = P x (1+RT)

= 1,000,000 x
= 1,000,000 x
= 1,000,000 x
= 1,000,000 x
= 1,000,000 x
=1004000 = 1004763

Arbitrage = Amount Receivable - Amount Payable

= 1004763 – 1004000
= EUR 763 PER EUR 1 MILLION
Q4
Spot GBP / SGD 2.6581
60 days fwd 2.6548
SGD interest rate 1.2% p.a.
GBP interest rate 2.4 % p.a.

 Factor 1

= - 0.0020  Factor 2
Factor 1 > Factor 2

Borrow Variable Currency

Assume capital SGD 1 million

Amount payable = P x (1+RT)

= 1,000,000 x
= 1,000,000 x
= 1,000,000 x
= 1,000,000 x
= 1,000,000 x
=1002000 = 1002754

Arbitrage = Amount Receivable - Amount Payable

= 1002754 – 1002000
= SGD 754 PER SGD 1 MILLION
Q7

Spot USD / AUD 1.1710 – 1.1720

3 months fwd. 1.1760 – 1.1770

AUD interest rate 3% - 3.20%

USD interest rate 2% - 2.20%

CASE – I BORROW BASE CURRENCY i.e. Borrow USD 1 Million

Step 1: Step 2:
Amount payable = P x (1+RT) Amount Receivable = P x (1+RT)
= 1,000,000 x ( 1 + x ) = 1,000,000 X
= 1,000,000 x ( 1 + x ) = 1,000,000 X
= 1,000,000 x ( 1 + ) = 1,002,364
= 1,005,500
ARBITRAGE PROFIT = AMOUNT RECEIVABLE – AMOUNT PAYABLE
= 1,002,364– 1,005,500
= - 3136
Therefore arbitrage does not exists.

Spot USD / AUD 1.1710 – 1.1720

3 months fwd. 1.1760 – 1.1770

AUD interest rate 3% - 3.20%

USD interest rate 2% - 2.20%

CASE – II BORROW VARIABLE CURRENCY i.e. Borrow AUD 1 Million

Step 1: Step 2:
Amount payable = P x (1+RT) Amount Receivable = P x (1+RT)
= 1,000,000 x ( 1 + x ) = 1,000,000 X
= 1,000,000 x ( 1 + x ) = 1,000,000 X
= 1,000,000 x ( 1 + ) = 1,008,430
= 1,008,000
ARBITRAGE PROFIT = AMOUNT RECEIVABLE – AMOUNT PAYABLE
= 1,008,430 – 1,008,000
= 430
= AUD 430 per AUD 1 MN
Q8
Spot GBP / AUD 2.0325 – 2.0335
6 months fwd 2.0280 – 2.0290
AUD interest rate 1.50 - 1.80%
GBP interest rate 2.70 - 3.00 %
CASE – I BORROW BASE CURRENCY i.e. Borrow GBP 1 Million
Step 1: Step 2:
Amount payable = P x (1+RT) Amount Receivable = P x (1+RT)
= 1,000,000 x ( 1 + x ) = 1,000,000 X
= 1,000,000 x ( 1 + x ) = 1,000,000 X
= 1,000,000 x ( 1 + ) = 1,009,238
= 1,015,000
ARBITRAGE PROFIT = AMOUNT RECEIVABLE – AMOUNT PAYABLE
= 1,009,238 – 1,015,000
= - 5762
Therefore arbitrage does not exists

Spot GBP / AUD 2.0325 – 2.0335

6 months fwd 2.0280 – 2.0290
AUD interest rate 1.50 - 1.80%
GBP interest rate 2.70 - 3.00 %
CASE – II BORROW VARIABLE CURRENCY i.e. Borrow AUD 1 Million
Step 1: Step 2:
Amount payable = P x (1+RT) Amount Receivable = P x (1+RT)
= 1,000,000 x ( 1 + x ) = 1,000,000 X
= 1,000,000 x ( 1 + x ) = 1,000,000 X
= 1,000,000 x ( 1 + ) = 1,010,759
= 1,009,000
ARBITRAGE PROFIT = AMOUNT RECEIVABLE – AMOUNT PAYABLE
= 1,010,759 – 1,009,000
= 1759
AUD 1759 per AUD 1 MN
 C.I.P. APPLICATION

Investment Decision Borrowing Decision

INR → P ( 1 + RT) - P INR → P ( 1 + RT) - P

Q1

CASE I: BORROW INR CASE II: BORROW USD

AMOUNT PAYABLE = P (1 + RT) – P AMOUNT PAYABLE = P (1 + RT) X - P
= 6,000,000 ( 1 + 5/100 X 3/12) – 6,000,000 = 6,000,000 ( 1 + 2.25/100 X 3/12) X – 6,000,000

= 75000 = 6,000,000 (1.005625) X – 6,000,000

= 60,242
CASE III: BORROW GBP CASE IV: BORROW CHF
AMOUNT PAYABLE = P (1 + RT) X - P AMOUNT PAYABLE = P (1 + RT) X - P
= 6,000,000 (1 + 3.5/100 X 3/12) X – 6,000,000 = 6,000,000 (1 + 1.5/100 X 3/12) X – 6,000,000

= 6,000,000 (1.00875) X – 6,000,000 = 6,000,000 (1.00375) X – 6,000,000

= 60,380 = 59,795

Q2

CASE I: INVEST INR CASE II: INVEST USD

AMOUNT RECEIVABLE = P (1 + RT) – P AMOUNT RECEIVABLE = P (1 + RT) X - P
= 8,000,000 ( 1 + 4/100 X 6/12) – 8,000,000 = 8,000,000 ( 1 + 2.25/100 X 6/12) X – 8,000,000

= 1,60,000 = 1,61,127

CASE III: INVEST GBP CASE IV: INVEST CHF

AMOUNT RECEIVABLE = P (1 + RT) X - P AMOUNT RECEIVABLE = P (1 + RT) X - P
= 8,000,000 (1 + 3.5/100 X 6/12) X – 8,000,000 = 8,000,000 (1 + 1.5/100 X 6/12) X – 8,000,000

= 1,61,453 = 1,60,862
Q3
CASE I: BORROW INR CASE II: BORROW USD
AMOUNT PAYABLE = P (1 + RT) – P AMOUNT PAYABLE = P (1 + RT) X - P
= 12,000,000 ( 1 + 4.25/100 X 60/360) – = 12,000,000 ( 1 + 2.5/100 X 60/360) X – 12,000,000

12,000,000 = 84,060
= 85000
CASE III: BORROW GBP CASE IV: BORROW CHF
AMOUNT PAYABLE = P (1 + RT) X - P AMOUNT PAYABLE = P (1 + RT) X - P
= 12,000,000 (1 + 3.75/100 X 60/360) X – 12,000,000 = 12,000,000 (1 + 1.75/100 X 60/360) X – 12,000,000

= 86,120 = 84,423

Q4
CASE I: INVEST INR CASE II: INVEST USD
AMOUNT RECEIVABLE = P (1 + RT) – P AMOUNT RECEIVABLE = P (1 + RT) X - P
= 8,000,000 ( 1 + 4/100 X 90/360) – 8,000,000 = 8,000,000 ( 1 + 2.5/100 X 90/360) X – 8,000,000

= 80,000 = 89838

CASE III: INVEST GBP CASE IV: INVEST CHF

AMOUNT RECEIVABLE = P (1 + RT) X - P AMOUNT RECEIVABLE = P (1 + RT) X - P
= 8,000,000 (1 + 3.25/100 X 90/360) X – 8,000,000 = 8,000,000 (1 + 1.5/100 X 90/360) X – 8,000,000

= 79,341 = 79,094
1. Given the following options establish which currency would be used to borrow.

6 million INR for a temporary period of 3 months

INR interest rate 5% p.a.

Currency Spot Rate Interest Rate 3 Months Fwd Rate

USD 44.7535 – 65 2.25% p.a. 44.9450 - 00
GBP 78.7275 – 25 3.50 % p.a. 78.8250 - 00
CHF 38.3525 – 75 1.50 % p.a. 38.5850 - 00

2. Given the following options establish which currency would be used to invest.

8 million INR for a temporary period of 6 months

Currency Spot Rate Interest Rate 6 months Fwd Rate

INR 4 % p.a.
USD 44.7535 - 65 2.25% p.a. 45.1500 - 00
GBP 78.7275 - 25 3.50 % p.a. 78.9400 - 50
CHF 38.3525 - 75 1.50 % p.a. 38.8375 - 25

3. Given the following options establish which currency would be used to borrow.

INR 12 million for a temporary period of 60 days.

Currency Spot rate Interest rate 60 days fwd rate

INR 4 - 4.25% p.a.
USD 44.7535 - 65 2.25-2.50 % p.a. 44.8750 - 00
GBP 78.7275 - 25 3.50-3.75 % p.a. 78.7950 - 00
CHF 38.3525 - 75 1.50-1.75 % p.a. 38.5050 - 00

4. Given the following options establish which currency would be used to invest.

INR 8 million for a temporary period of 90 days.

Currency Spot rate Interest rate 90 days fwd rate

INR 4 - 4.25%
USD 44.7535 - 85 2.50-2.75 % 44.9800 - 50
GBP 78.7275 - 00 3.25-3.50 % 78.8700 - 50
CHF 38.3525 - 55 1.50-1.75 % 38.5900 - 50
 PRACTICE QUESTIONS

CROSS CURRENCY RATES

IDENTIFY COUNTRY IN WHICH DERIVED QUOTE IS DIRECT AND INDIRECT
CALCULATE SPREAD, MID RATE, % SPREAD
1 USD / INR 60.2530 - 60.2540 2 USD / SGD 1.5430 - 35
GBP / USD 1.6260 - 1.6265 SGD / GBP 0.3340 - 42
Find GBP / INR Find USD/ GBP
97.9714 - 98.0031 0.5154 - 0.5158
3 AED /INR 16.4231 - 40 4 GBP / AUD 1.8250 - 1.8349
EUR/ INR 82.5125 - 35 GBP / EUR 1.2650 - 1.2785
Find AED / EUR Find EUR / AUD
19.9035- 19.9049 1.4275 - 1.4505
5 SGD 1.5423 - 33 = 1 USD 6 EUR / GBP 1.6543 - 57
GBP 0.3323 - 33 = 1 SGD GBP / NZD 0.2786 - 00
Find GBP / USD Find EUR / NZD
1.9941 - 1.9512 0.4609 - 0.4636

ARBITRAGE
1 AUD /USD 1.9309 - 1.9388 2 SEK / AUD 1.3733 - 35
AUD / USD 1.9398 - 1.9400 AUD / SEK 0.7215 - 25
AUD 516 per AUD 1 million AUD 7705 per AUD 1 million
3 USD / CAD 1.1685 - 1.1695 4 1.5183 - 93 USD per GBP
USD / CHF 1.3785 - 1.3795 6.4825 - 25 SEK per USD
CAD / CHF 1.1885 - 1.1895 9.8300 - 00 SEK per GBP
CAD 6714 per CAD 1 million Calculate arbitrage on USD 1 million
USD 242 per USD 1 million
5 EUR / SGD 1.9575 6 EUR / USD 1.3132
EUR / CHF 1.6478 USD / SGD 1.4733
CHF / SGD 1.1878 EUR / SGD 1.9332
CHF 278 PER CHF 1 million EUR 795 per EUR 1 million