L Isaac Diez. Isaac Diez Peris lives in Rio de Janeiro.

While attending school in Spain he meets

Juan Carlos Cordero from Guatemala. Over the summer holiday Isaac decides to visit Juan Carlos in
Guatemala City for a couple of weeks. Isaac’s parents give him some spending money, R$4,500.
Isaac wants to exchange it for Guatemalan quetzals (GTO). He collects the fol- lowing rates:

Spot rate on the GTQ/€ cross rate GTQ10.5799 = €1.00 Spot rate on the €/R$ cross rate
€0.4462 = R$1.00

a. What is the Brazilian reais/Guatemalan quetzal cross rate?

b. How many quetzals will Isaac set for his reais?

2. Victoria Exports. A Canadian exporter, Victoria Exports, will be receiving six payments of C12,000,
ranging from now to 12 months in the future. Since the company keeps cash balances in both
Canadian dollars and U.S. dollars, it can choose which currency to exchange the euros for at the end
of the various periods. Which currency appears to offer the better rates in the forward market?

Period Days Forward C$/euro US$/euro

spot — 1.3360 1.3221
1 month 30 1.3368 1.3230
2 months 60 1.3376 1.3228
3 months 90 1.5382 1.5224
6 months 180 1.5406 1.3215
12 months 360 1.3462 1.3194
       

3. Yen Forward. Use the following spot and forward bid-ask rates for the Japanese yen/U.S. dollar
(¥/$) exchange rate from September 16, 2010, to answer the following questions:

a. What is the mid-rate for each maturity?

b. What is the annual forward premium for all maturities?

c. Which maturities have the smallest and largest for- ward premiums?

Period If$ Bid Rate ¥/$ Ask Rate

spot 85.41 55.46
1 month 55.02 55.05
2 months 84.86 84.90
3 months 84.37 84.42
6 months 83.17 83.20
12 months b2. S7 b2.91
24 months 81.79 81.82

4. Credit Suisse Geneva. Andreas Bossio just started as an analyst for Credit Suisse in Geneva,
Switzerland. He receives the following quotes for Swiss francs against the dollar for spot, 1 month
forward, 3 months forward, and 6 months forward.

Spot exchange rate:

Bid rate SF1.2575/$

Ask rate SF1.2585/S

1 month forward 10 to 15

3 months forward 14 to 22

6 months forward 20 to 30

a. Calculate outright quotes for bid and ask and the number of points spread between each.

b. What do you notice about the spread as quotes evolve from spot toward 6 months?

c. What is the 6-month Swiss bill rate?

5. Munich to Moscow. On your post-graduation cell- oratory trip you decide to travel from Munich,
Ger- many, to Moscow, Russia. You leave Munich with 15,000 euros in your wallet. Wanting to
exchange all of them for Russian rubies, you obtain the following quotes:

Spot rate on the dollar/euro cross rate $1.3214/C Spot rate on the rubble/dollar cross rate
Rbl30.96/$

a. What is the Russian rubble/euro cross rate?

b. How many rubbles will you obtain for your euros?

6. Moscow to Tokyo. After spending a week in Mos- cow you get an email from your friend in Japan.
He can get you a very good deal on a plane ticket and wants you to meet him in Tokyo next week to
continue your post-graduation celebratory trip. You have 450,000 rubies left in your money pouch. In
preparation for the trip, you want to exchange your Russian rubbles for Japanese yen so you get the
following quotes:

Spot rate on the rubbles/dollar cross rate Rbl30.96/$ Spot rate on the yen/dollar cross rate
Y84.02/$

a. What is the Russian rubble/yen cross rate?

b. How many yen will you obtain for your rubies?

7. Asian Pacific Crisis. The Asian financial crisis that began in July 1997 wreaked havoc throughout
the currency markets of East Asia.

a. Which of the following currencies had the largest depreciations or devaluations during the July to
November period?

b. Which seemingly survived the first five months of the crisis with the least impact on their
currencies?

July 1997 Nov 1997

Country and Currency (per US$) (per US$)

China yuan 8.40 8.40

Hong Kong dollar 7.75 7.73
Indonesia rupiah 2,400 3,600
Koreawon 900 1,100
Malaysia ringgit 2.50 3.50
Philippines peso 27 34
Singapore dollar 1.43 1.60
Taiwan dollar 27.80 32.70
Thailand baht 25.0 40.0

7.Use the following spot and forward bid-ask rates for the U.S. dollar/euro (US$/€) exchange rate from December 10,
2010,
to answer the following questions:
                     
    US$/€   US$/€            
Period   Bid Rate   Ask Rate            
spot   1.3231   1.3232            
1 month   1.3230   1.3231            
2 months   1.3228   1.3229            
3 months   1.3224   1.3227            
6 months   1.3215   1.3218            
12 months   1.3194   1.3198            
24 months   1.3147   1.3176            
                     
a. What is the mid-rate for each
     
maturity?              
b. What is the annual forward premium for all maturities?            
c. Which maturities have the smallest and largest forward premiums?          

8. The following exchange rates are available to you. (You can buy or sell at the
stated rates.)
     
Mt. Fuji Bank   ¥92.00/$
Mt. Rushmore Bank   SF1.02/$
Mt Blanc Bank   ¥90.00/SF
     
Assume you have an initial SF12,000,000. Can you make a profit via triangular
arbitrage? If so, show the steps and calculate the amount of profit in Swiss francs
(Swissies).

9.

Use the following spot and forward bid-ask rates for the U.S. dollar/Australian dollar (US$=A$1.00) exchange rate fro
December 10, 2010, to answer the following questions
               
    US$/A$   US$/A$      
Period   Bid Rate   Ask Rate      
spot   0.98510   0.98540      
1 month   0.98131   0.98165      
2 months   0.97745   0.97786      
3 months   0.97397   0.97441      
6 months   0.96241   0.96295      
12 months   0.93960   0.94045      
24 months   0.89770   0.89900      
               
a. What is the mid-rate for each          
maturity?
b. What is the annual forward premium for all maturities?      
c. Which maturities have the smallest and largest forward
premiums?    

10. A corporate treasury working out of Vienna with operations in New York
simultaneously calls Citibank in New York City and Barclays in London. The
banks give the following quotes on the euro simultaneously.

     
Citibank NYC Barclays London
$1.2624–25/€ $1.2622–23/€
     
Using $1 million or its euro equivalent, determine whether the corporate
treasury could make geographic arbitrage profit with the two different exchange
rate quotes.

11.
The Venezuelan government officially floated the Venezuelan bolivar (Bs) in February of
2002. Within weeks, its value had moved from the pre-float fix of BS778/$ to Bs1025/$.

     
a. Is this a devaluation or depreciation?    
b. By what percentage did its value change?    

12.
The Venezuelan political and economic crisis deepened in late 2002 and early
2003. On January 1st, 2003, the bolivar was trading at Bs1400/$. By February 1st,
its value had fallen to Bs1950/$. Many currency analysts and forecasters were