Reference no: EM133069747

1. What is the forward market?

• A forward market is an over-the-counter marketplace that sets the price of a financial instrument or asset for future delivery.

2. What is meant by a currency trading at a discount or at a premium in the forward market?

• The forward market means contracting today for the future purchase or sale of foreign exchange. The forward price is rarely the same as the spot price, when it is less than the spot price it is at a discount, when it is more it is at a premium.

3. Suppose the spot exchange rate for the Thai baht is ¥3.28 and the six-month forward rate is ¥3.15. ?

• Which is worth more, a Thai baht or a Japanese yen?
• Is the Thai baht selling at a premium or a discount relative to the Japanese yen?
• Which currency is expected to appreciate in value?

4. Use quotation below to answer the following questions?

• What is the six-month forward rate for the Japanese yen in yen per U.S. dollar? Is the yen selling at a premium or a discount? Explain.
• What is the three-month forward rate for Australian dollars in U.S. dollars per Australian dollar? Is the dollar selling at a premium or a discount? Explain.
• What do you think will happen to the value of the dollar relative to the yen and the Australian dollar, based on the information in the figure? Explain.

5. Using quotationin question 4, calculate the one-, three-, and six- monthforward premium or discount for the Japaneseyen versus the U.S. dollarusing American term quotations. For simplicity, assume each month has 30 days. What is the interpretation of your results?

6. Using figure in question 4, calculate the one-, three-, and six-month forward premium or discount for the U.S. dollar versus the British pound using European term quotations. For simplicity, assume each month has 30 days. What is the interpretation of your results?

7. Calculate the bid and ask cross exchange rates BRL/QAR and NZD/QAR.

8. Forward Premium. Compute the forward discount or premium for the Philippine peso whose 90-day forward rate is ?.66 and spot rate is ?.65. State whether your answer is a discount or premium.

9. Assume that one year ago, the spot rate of the British pound was ?45.56. One year ago, the one-year futures contractof the British pound exhibiteda discount of 6%. At that time, you sold futures contracts on pounds, representing a total of 1,000,000 pounds. From one year ago to today, the pound's value depreciated against the baht by 4 percent. Determine the total baht amount of your profit or loss from your futures contract.

10. A foreign exchangetrader took a short positionof £5,000,000 when the ?/£ exchange rate was 45.56. Subsequently, the exchange rate has changed to 45.60. Is this movement in the exchange rate good from the point of view of the position taken by the trader? By how much has the trader's liability changed because of the change in the exchange rate?