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Chapter5PblmSol

The document discusses two currency exchange problems. The first involves exchanging euros for Russian rubles in St. Petersburg, with an exchange rate of 35.29 rubles per euro yielding proceeds of 352,935 rubles. The second discusses Swiss franc exchange rates against the US dollar at various time periods, noting that the bid-ask spread widens over longer periods due to thinner trading volumes. It also calculates the implied 6-month Swiss interest rate.

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Laston MAseko
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159 views2 pages

Chapter5PblmSol

The document discusses two currency exchange problems. The first involves exchanging euros for Russian rubles in St. Petersburg, with an exchange rate of 35.29 rubles per euro yielding proceeds of 352,935 rubles. The second discusses Swiss franc exchange rates against the US dollar at various time periods, noting that the bid-ask spread widens over longer periods due to thinner trading volumes. It also calculates the implied 6-month Swiss interest rate.

Uploaded by

Laston MAseko
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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Problem 5.1 Paris to St.

Petersburg
On your post-graduation celebratory trip you are leaving Paris for St. Petersburg, Russia. You leave Paris with 10,000 euros in your money pouch. Wanting to exchange all of these for Russian rubles, you obtain the following quotes.

Assumptions Beginning your trip with euros Spot rate ($/) Spot rate (Rubles/$) a) Calculate the cross rate Cross rate (Rubles/) Rubles/ = Rubles/$ x $/ b) What would be the proceeds in Rubles? Converting your euros into Rubles

Values 10,000.00 1.4260 24.75

35.29

352,935

Problem 5.2 Basel Trading


You receive the following quotes for Swiss francs against the dollar for spot, one-month forward, 3months forward, and 6 months forward. Assumptions Spot exchange rate: Bid rate (SF/$) Ask rate (SF/$ One-month forward 3-months forward 6-months forward a) Calculate outright quotes One-month forward 3-months forward 6-months forward Values 1.2575 1.2585 10 to 15 14 to 22 20 to 30 Bid 1.2585 1.2589 1.2595 Ask 1.2600 1.2607 1.2615 Spread 0.0015 0.0018 0.0020

b) What do you notice about the spread? It widens, most likely a result of thinner and thinner trading volume. Added/optional question: What is the 6-month Swiss bill rate? Spot rate, midrate (SF/$) Six-month forward rate, midrate (SF/$) Maturity (days) 6-month US dollar treasury rate (yield) Solving for implied SF interest rate Check calculation: the six-month forward

1.2580 1.2605 180 4.200% 6.450% 1.2719

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