1a A Global Forex trader gives the following quotes for the Swiss Franc spot, one month,...

1a	A Global Forex trader gives the following quotes for the Swiss Franc spot, one month, three months and six months to US based treasurer USD 1.0356/60 4/6 9/8 14/11 Calculate outright price for Spot, One – Month, Three- Month, Six Months
b	If the trader wished to buy 10,000 Swiss francs for one and three months forward, how much would he pay in dollars?
c	If he wished to purchase 20,000 US dollars three-Month Forward Contract and Six-Month Forward Contract, how much would he have to pay in Swiss Francs?
d	In case, the Swiss Francs are being bought. What will be the premium or discount for the One Month Contract rate and Three-Month contract rate in annual percentage terms?
e	Calculate the Bid- Ask Spread percentage for Spot, One Month, Three Months and Six Months the above details.

Expert Solution

a) The spot quote is USD 1.0356 - 1.0360

One – Month quote is USD (1.0356+0.0004) - (1.0360+0.0006) = USD 1.0360 - 1.0366

Three- Month quote is USD (1.0356+0.0009) - (1.0360+0.0008) = USD 1.0365 - 1.0368

Six Months quote is USD (1.0356+0.0014) - (1.0360+0.0011) = USD 1.0370 - 1.0371

b) To buy 10000 Swiss francs in one month forward, amount required = 10000 * 1.0366 = USD 10366

To buy 10000 Swiss francs in three month forward, amount required = 10000 * 1.0368 = USD 10368

c) To buy 20000 US dollars in three month forward, amount required = 20000 / 01.0365 = 19295.71 Swiss Francs

To buy 20000 US Dollars in six month forward, amount required = 20000 / 1.0370 = 19286.40 Swiss Francs

d)

The one month premium for buying Swiss francs is USD 0.0006 ,

In annual terms , premium = 12*0.0006 = USD 0.0072

% = 0.0072/1.0360 = 0.00695 or 0.695%

The three month premium for buying Swiss francs is USD 0.0008 ,

In annual terms , premium = 4*0.0008 = USD 0.0032

% = 0.0032/1.0360 = 0.003089 or 0.3089%

jeff jeffy answered 1 year ago

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