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Calculate outright quotes for bid and ask

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Reference no: EM133028059

Question - (1) The following exchange rates are available to you. (You can buy or sell at the stated rates.)

Mt. Fuji Bank ¥92.00/$

Mt. Rushmore Bank SF1.02/$

Mt Blanc Bank ¥90.00/SF

Assume you have an initial SF12,000,000. Is there an arbitrage opportunity and why? If so, show the steps and calculate the amount of profit in Swiss francs.

(2) Andreas Broszio just started as an analyst for Credit Suisse in Zurich, Switzerland. He receives the following quotes for Swiss francs against the dollar for spot, one-month forward, 3-months forward, and 6-months forward.

Spot exchange rate:

Bid rate SF 1.2575/$

Ask rate SF 1.2585/S

One-month forward 10 to 15

3-months forward 14 to 22

6-months forward 20 to 30

a) Calculate outright quotes for bid and ask, and the number of points spread between each.

b) What do you notice about the spread as quotes evolve from spot toward six months?

c) If 6-month US dollar treasury rate is 4.200%, what is the 6-month Swiss bill rate?

Reference no: EM133028059

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