1) Bank of America’s bid price for Canadian dollars is $.7938 and its ask price is $.81. What is the bid/ask percentage spread?
2) Compute the bid/ask percentage spread for Mexican pesos retail transactions in which the ask rate is $.11 and the bid rate is $.10?
3) The Walmart Corporation is a U.S exporter that invoices its exports to the United Kingdom in British pounds. If it expects that the pound will appreciate against the dollar in the future, should it hedge its exports with a forward contract? Explain?
4) If the direct exchange rate of the Euro is worth $1.25, what is the indirect rate of the Euro? What is the value of the U.S dollar in Euros?
5) Assume Poland’s currency (zloty) is worth $.17 and the Japanese yen is worth $.008. What is the cross rate of the zloty with respect to the yen? How man yen equals a zloty?
6) JP Morgan Chase Bank expects that the Mexican peso will depreciate against the dollar from its sport rate of $.15 to $.14 in 10 days. The following interbank lending and borrowing rates exist:
Lending Rate Borrowing Rate
U.S dollar 8.0% 8.3%
Mexican peso 8.5% 8.7%
Assume that JP Morgan Chase has a borrowing capacity of either $10 million or $70 million pesos in the interbank market, depending on which currency it wants to borrow.
a) How could JP Morgan Chase attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy?
b) Assume all the preceding information with this exception: JP Morgan Chase expects the peso to appreciate from its present spot rate of $.15 to $.17 in 30 days. How could it attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy?
7) Capital One Bank expects that the Singapore dollar will depreciate against the U.S dollar from its spot rate of $.43 to $.42 in 60 days. The following interbank lending and borrowing rates exist:
Lending Rate Borrowing Rate
U.S dollar 7.0% 7.2%
Singapore dollar 22.0% 24.0%
Capital one Bank considers borrowing $10 million Singapore dollars in the interbank market and investing the funds in dollars for 60 days. Estimate the profits (or losses) that could be earned from this strategy. Should Capital One Bank pursue this strategy?