Assignment you Solutions

 Essay on Assignment 1 Solutions

The Oriental University of Hong Kong

CUHK Business School

FINA3020 Foreign Finance

Assignment 1

Problem 1

Hang Seng Traditional bank quotes bid-ask rates of USD/EUR 1 ) 3005 – 1 . 3007 and JPY/USD 104. 35 – 104. 40. What would be Suspend Seng Bank's direct selling price of JPY/EUR? The cross-rate of JPY/EUR can be achieved by:

JPY JPY USD

пЂЅ

п‚ґ

EUR USD EUR

The synthetic ask is a highest product:

/ EUR

/USD

as well as EUR

Man made StJPY

пЂЅ StJPY

п‚ґ StUSD

, ask

, ask

, ask

пЂЅ 104. 40 п‚ґ1. 3007

пЂЅ 135. 7931

Question 2

A financial institution is citing the following exchange rates resistant to the dollar for the Switzerland franc plus the Australian money:

CHF/USD sama dengan 1 . 5960 – 70

AUD/USD = 1 . 7225 – thirty five

A Switzerland firm asks the bank for the CHF/AUD estimate. What cross-rate would the bank quote? In obtaining this kind of quotation, we all keep in mind that CHF/AUD = CHF/USD Г· AUD/USD, and that the cost (bid or ask) for every single transaction is the one that is more advantageous to the bank.

The CHF/AUD bid price is the quantity of CHF the financial institution is willing to pay to buy a single AUD. This transaction (buy AUD — sell CHF) is equivalent to providing CHF to obtain dollars (at the bid charge of 1. 5960 and the advertising those dollars to buy AUD (at a great ask charge of 1. 7235). The man-made bid is definitely the lowest zone:

/ AUD

Synthetic StCHF

пЂЅ

, wager

/USD

StCHF

, bid

/USD

StAUD

, question

1 . 5960

1 . 7235

пЂЅ zero. 9260

пЂЅ

The CHF/AUD ask price is the number of CHF the bank is usually asking for a single AUD. This kind of transaction (sell AUD — buy CHF) is equivalent to shopping for CHF with dollars (at the question rate of just one. 5970 and after that simultaneously purchasing these us dollars against AUD (at an attempt rate of just one. 7225). This may be expressed as follows:

Synthetic S

CHF / AUD

t, ask

пЂЅ

/USD

StCHF

, ask

/USD

StAUD

, bid

1 . 5970

1 . 7225

пЂЅ 0. 9271

пЂЅ

The ensuing quotation is usually CHF/AUD 0. 9260 – 0. 9271.

Question 3

Given the subsequent information, exactly what are the NZD/SGD currency against currency bid-ask quotations?

American Terms

Put money

Ask

0. 7265

zero. 7272

0. 6135

0. 6140

Lender Quotations

NZD

SGD

European Terms

Bid

Ask

1 . 3751

1 . 3765

1 . 6287

1 . 6300

NZD / SGD

USD / SGD

NZD /USD

Sbid

пЂЅ Sbid

п‚ґ Sbid

пЂЅ zero. 6135 п‚ґ1. 3751

пЂЅ 0. 8436

NZD as well as SGD

CHF / SGD

NZD /USD

Sask

пЂЅ Sask

п‚ґ Sask

пЂЅ 0. 6140 п‚ґ1. 3765

пЂЅ zero. 8452

The NZD/SGD bid-ask quote NZD 0. 8436 – NZD 0. 8452.

The reciprocal,

1

T

NZD / SGD

bet

SGD / NZD

пЂЅ Sask

пЂЅ 1 . 1854 and

one particular

S

NZD / SGD

ask

The SGD/NZD bid-ask quote SGD 1 . 1832 – SGD 1 . 1854

SGD / NZD

пЂЅ Sbid

пЂЅ 1 . 1832.

Question 5

You concentrate on cross-rate arbitrage. You notice the following quotes: CHF/USD = 1 ) 5971

AUD/USD = 1 . 8215

AUD/CHF = 1 . 1440

Overlooking transaction costs, do you have a great arbitrage option based on these quotes? When there is an arbitrage opportunity, what steps would you take to make an arbitrage income, and how much would you income if you have UNITED STATES DOLLAR 1, 000, 000 readily available for this purpose? The implicit cross-rate among Australian dollars and Switzerland france is definitely AUD/CHF sama dengan AUD/USD Г· CHF/USD sama dengan 1 . 8215 / 1 . 5971 sama dengan 1 . 1405. However , the quoted cross-rate is higher at AUD/CHF 1 . 1440. So , triangular arbitrage is achievable. In the quoted cross-rate of AUD/CHF 1 ) 1440, one particular Swiss droit is worth AUD 1 . 1440, whereas the cross-rate based on the direct rate implies that one Switzerland franc will be worth AUD 1 ) 1405. Therefore, the Switzerland franc is definitely overvalued relative to the AUD in the quoted cross-rate, and your strategy for triangular arbitrage ought to be based on selling Swiss dextre to buy AUD as per the quoted cross-rate. Accordingly, your methods would have or a great arbitrage revenue is as comes after: 1 . Sell off dollars to get Switzerland francs. Sell USD 1, 000, 500 to get CHF one particular, 597, 75. 2 . Sell Swiss dextre to buy Aussie dollars. Sell off CHF 1 . 597, 75 to buy AUD 1, 827, 082. 45.

3. Sell Australian us dollars for dollars. Sell AUD 1, 827, 082. forty for UNITED STATES DOLLAR 1, 003, 064. 73. Thus, the arbitrage revenue is UNITED STATES DOLLAR 3, 064. 73.

Query 5

Omni Advisors, an international pension fund manager, programs to sell...

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