Assignment help-FIN 415 Spring 2017 Homework Set 4


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FIN 415 Spring 2017 Homework Set 4

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Problem 1: Assume that the forward rate of a 1-Year long forward GBP is 𝐹1π‘ˆπ‘†π·πΊπ΅π‘ƒβ„=1.30. The amount of the contract is USD 250,000. What is the size of the contract?

Problem 2: The size of a 1-Year forward AUD (Australian dollars) is AUD 260,000 and the amount is USD 182,000. What is the 1-Year USD/AUD forward rate?

Problem 3: What is the profit/loss on a 1-Year long forward EUR at t=1 when 𝑋1π‘ˆπ‘†π·πΈπ‘ˆπ‘…β„=1.11; 𝐹1π‘ˆπ‘†π·πΈπ‘ˆπ‘…β„=1.22 and the size of the contract is EUR 350,000?

Problem 4: What is the size of a difference check on a 1-Year short forward GBP contract given that the size of the contract is GBP 500,000; the amount of the contract is USD 625,000; and 𝑋1π‘ˆπ‘†π·πΊπ΅π‘ƒβ„=1.30 ?

Problem 5: Assume that π‘ŸπΈπ‘ˆπ‘…=7% and π‘Ÿπ‘ˆπ‘†π·=4%. What is the 1-Year synthetic forward rate, given that 𝑋0π‘ˆπ‘†π·πΈπ‘ˆπ‘…β„=1.16?

Problem 6: Today’s GBP/USD spot rate is, 𝑋0π‘ˆπ‘†π·πΊπ΅π‘ƒβ„=1.28. Assume that π‘ŸπΊπ΅π‘ƒ=6% and π‘Ÿπ‘ˆπ‘†π·=4%, if the 1-Year USD/GBP forward rate is 𝐹1π‘ˆπ‘†π·πΊπ΅π‘ƒβ„=1.28, according to the Covered Interest Rate parity (CIRP), is the GBP underpriced/overpriced in the actual forward contract?
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Problem 7: Based on the information in Problem 6, assuming that you can borrow 500,000 units in the synthetic forward position at t=0, what would your profit be from CIRP arbitrage (in USD)?

Problem 8: Assume that π‘ŸπΈπ‘ˆπ‘…=10%, π‘Ÿπ‘ˆπ‘†π·=3% and 𝑋0π‘ˆπ‘†π·πΈπ‘ˆπ‘…β„=1.32. You want a long forward position in EUR 210,000 1-Year forward, i.e. receive EUR one year in the future. Your banker quotes you the following USD/EUR forward rate: 𝐹1π‘ˆπ‘†π·πΈπ‘ˆπ‘…β„=1.22. Will you enter the actual forward contract or set up a synthetic forward position?

Problem 9: Assume you want a short position in AUD in a 1-Year USD/AUD contract. You calculate the synthetic forward at πΉπ‘Œ1π‘ˆπ‘†π·π΄π‘ˆπ·β„=0.80 and your banker quotes you 𝐹1π‘ˆπ‘†π·π΄π‘ˆπ·β„=0.82. Do you choose the actual forward contract or the synthetic forward?
Problem 10: Compute the mark-to-market value of the following short forward NZD (New Zealand Dollar) contract. The size of the short position is NZD 450,000 and the forward rate is πΉπ‘π‘ˆπ‘†π·π‘π‘π·β„=0.66; the current spot rate (at time of valuation) 𝑋0π‘ˆπ‘†π·π‘π‘π·β„=0.64 . The NZD and USD interest rates are: π‘Ÿπ‘π‘π·=9% and π‘Ÿπ‘ˆπ‘†π·=3%; assume the contract matures in two years from now (so at t=2).
Bonus Problem: Which of the following two statements is correct?
S1: According to CIRP, the spot price of the high interest rate currency is expected to appreciate.
S2: According to CIRP, forward rates and synthetic forward rates are the same.
a) S1 is true but S2 is false
b) S2 is true but S1 is false
c) Both statements are true
d) Both statements are false
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FIN 415 Homework 4 Spring 2017 Name:____________________________________
Problem 1:
Problem 2:
Problem 3:
Problem 4:
Problem 5:
Problem 6:
Problem 7:
Problem 8:
Problem 9:
Problem 10:
Bonus Question:

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