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a. Which of the following currencies had the largest depreciations or devaluations during the July to November period?
b. Which seemingly survived the first five months of the crisis with the least impact on their currencies?
Country
China
Hong Kong
Currency
yuan
dollar
Indonesia
Korea
Malaysia
Philippines
Singapore
Taiwan
Thailand
rupiah
won
ringgit
peso
dollar
dollar
baht
July 1997
(per US$)
8.40
7.75
November 1997
(per US$
8.40
7.73
Part a.
Percentage
Change vs dollar
0.0%
0.3%
2,400
900
2.50
27
1.43
27.80
25.0
3,600
1,100
3.50
34
1.60
32.70
40.0
-33.3%
-18.2%
-28.6%
-20.6%
-10.6%
-15.0%
-37.5%
Part b.
The Chinese government kept up against the dollar, meaning that the Chines yuan maintained value against the US
dollar. The Thai baht fell 37.5% in five months, and the Indonesian rupiah had a loss of 33.3%
Period
spot
1 month
2 months
3 months
6 months
12 months
24 months
US$/
Bid Rate
1.3231
1.3230
1.3228
1.3224
1.3215
1.3194
1.3147
US$/
Ask Rate
1.3232
1.3231
1.3229
1.3227
1.3218
1.3198
1.3176
Period
spot
1 month
2 months
3 months
6 months
12 months
24 months
Days Forward
30
60
90
180
360
720
US$/
Bid Rate
1.3231
1.3230
1.3228
1.3224
1.3215
1.3194
1.3147
US$/
Ask Rate
1.3232
1.3231
1.3229
1.3227
1.3218
1.3198
1.3176
a)
Calculated
Mid-Rate
1.32315
1.32305
1.32285
1.32255
1.32165
1.31960
1.31615
b)
Forward
Premium
-0.0907%
-0.1360%
-0.1814%
-0.2267%
-0.2683%
-0.2645%
The forward rates progressively require less and less U.S. dollars per euro than the current spot rate. Therefore the dollar is
selling forward at a premium and the euro is selling forward at a discount.
c) Which maturities have the smallest and largest forward premiums?
The 24 month forward rate had a small premium. The 1 month forward possesses the largest premium.
92.00/$
SF1.02/$
90.00/SF
Assume you have an initial SF12,000,000. Can you make a profit via triangular arbitrage?
If so, show the steps and calculate the amount of profit in Swiss francs.
Assumptions
Beginning funds in Swiss francs (SF)
Mt. Fuji Bank (yen/$)
Mt. Rushmore Bank (SF/$)
Mt Blanc Bank (yen/SF)
Try Number 1: Start with SF to $
Step 1: SF to $
Step 2: $ to yen
Step 3: yen to SF
Profit?
Values
12,000,000.00
92.00
1.0200
90.00
11,764,705.88
1,082,352,941.18
12,026,143.79
26,143.79
Profit or Loss?
Profit or Loss?
1,080,000,000.00
11,739,130.43
11,973,913.04
(26,086.96)
Profit or Loss?
LOSS
D16 / D18
D22 x D17
D23 / D19
D24 - D16
Barclays London
$0.7545-75/
Using $1 million or its euro equivalent, show how the corporate treasury could make
geographic arbitrage profit with the two different exchange rate quotes.
Assumptions
Beginning funds
Values
1,000,000.00
0.7551
0.7561
0.7545
0.7575
$
$
$
$
$
$
1,000,000.00
1,320,132.01
996,831.68
(3,168.32)
1,000,000.00
1,322,576.38
997,883.88
(2,116.12)
D16
D16 / D23
D27 x D19
D28 - D26