INTB 336 International Money and Finance Assignment- Drexel University
1. Refer to the foreign exchange (FX) rates table, which shows FX closing market rates for Oct 15 (Tuesday) and Oct 16 (Wednesday). And answer the following questions.
i) There are two different ways to quote exchange rates-a direct quotation or an indirect quotation. How are the currencies quoted in the table below-direct quote or indirect quote-in columns 2 & 3 (In US$) and in columns 6 & 7 (Per US$), respectively?
ii) Which currency shownin the list depreciated the most from Tuesday (10/15) to Wednesday (10/16)?
iii) Which currency (or currencies) among the currencies listed in the table below appreciated the most during the period from January 1, 2019, to the present (YTD)?
iv) Please find out from your research why Ecuador currency does not change at the fixed exchange rate of 1.
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U.S.-dollar foreign-exchange rates in late New York trading
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IN US$
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US$ VS. % CHG
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PER US$
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Wed
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Tues
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1-DAY
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YTD
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Wed
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Tues
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U.K. pound
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1.2828
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1.2784
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-0.34
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-0.5
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0.7795
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0.7822
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Argentina peso
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0.0173
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0.0172
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-0.92
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53.4
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57.7493
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58.2855
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Thailand baht
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0.03294
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0.03285
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-0.26
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-6.1
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30.360
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30.440
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China yuan
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0.1410
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0.1412
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0.17
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3.1
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7.0937
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7.0818
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Euro area euro
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1.1073
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1.1032
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-0.37
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3.6
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0.9031
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0.9065
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Ecuador US dollar
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1
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1
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unch
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unch
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1
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1
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Japanese yen
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0.00920
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0.00919
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-0.10
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-0.8
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108.75
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108.86
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2. Suppose you have the following spot exchange rates in FX markets:
£1 = $1.27, €1 = $1.10, and £1 = €1.18.
i) Check if the cross rate between the euro (€) and the UK pound (£) is consistent or not.
ii) How much profit (in $ terms) can you make from trading $1,000? Describe your trading process to get your profit, if there is any.
iii) How much will you have profit or loss when you follow a reversed order of transaction between UK pound and euro from that in Q2. ii) above?
iv) How do you expect the current cross rate of £1 = €1.18change after numerous arbitrage transactions in global FX markets take place- go up or down in the value of UK poundwith respect toeuro? Explain why and how.
3. You purchased a European foreign exchange option contract to buy 5000UK pound at the price of $1.31/£ which expires today. You have paid $600 for the contract. Suppose the spot rate on the expiration date, today, is $1.32/£, what will be your optimal decision for the contract (exercise or not exercise)?
4. The recent market data on the U.S. and UK are shown as:
the spot rate of the UK pound $1.27/£
the 90-day forward rate $1.28/£
the 180-day forward rate $1.30£
interest rate (TB) in the U.S.: 3% (per year)
interest rate (TB) in the UK.: 1% (per year)
If you have $1 million available for 3 months, where do you want to invest (assume no transaction costs)? Explain why. Please apply all three decision making rules, as discussed in class, and show that your answers are consistent.
Format your assignment according to the following formatting requirements:
1. The answer should be typed, double spaced, using Times New Roman font (size 12), with one-inch margins on all sides.
2. The response also includes a cover page containing the title of the assignment, the student's name, the course title, and the date. The cover page is not included in the required page length.
3. Also include a reference page. The Citations and references should follow APA format. The reference page is not included in the required page length.