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Marisol Camacho

Walden University

Ivonne Chirino
MMBA-6252V-99 International Finance

February 21nd, 2010

APPLICATION 1
Problems’ Solutions

CHAPTER 5

2. Answer:

FN(CD/SF) =FN(CD/\$)*FN(\$/SF)

F1(CD/SF) = 1.2433 * .8485 = 1.0557
F3(CD/SF) = 1.2433 * .8517 = 1.0589
F6(CD/SF) = 1.2412 * .8573 = 1.0641

4. Answer:

• Spot: 1.3436 – 1.3431 = 5
• One-Month:1.3442 – 1.3432 = 10
• Three-Month: 1.3463 – 1.348 = 15
• Six-Month: 1.3508 – 1.3448 = 20

9. Answer:

a. What actions do you need to take to speculate in the forward market? What is theexpected dollar profit from speculation?

The best action to take in this case, is buy £1,000,000 forward for \$1.50/£.

b. What would be your speculative profit in dollar terms if the spot exchangerate actually turns out to be \$1.86/£.

If that change occurs we will experiment a loss from this action. That loss will be:
£1,000,000 x (\$1.86 -\$1.90) = -\$40,000.

10. Answer:

a. Describe thecurrency transaction that Omni should undertake to eliminate currency risk over the 30- day period.

We need to see with the information we have if it going to be a gain or lose to make thistransaction with our current currency exchange rates with the spot, 30-days and 90-days maturity.

b. Calculate the following:

The CHF/ZAR cross currency rate Omni would use in valuing the Swiss equityportfolio.

The current value of Omni’s Swiss equity portfolio in ZAR

The annualized forward premium or discount at which the ZAR is trading versus the CHF

\$ 3’000,000 CHF

\$ 3’000,000 /1.5343 = \$ 1’955,289.05 DLLS

1’955,289.05 * 6.2681 = \$12’225, 947.29 ZAR

ZAR \$12’225, 947.29 /6.2641 = \$1'956,537.61 USD
USD \$1'956,537.61 * 1.5226 = \$2’979,024.17 CHF

F3,CHF = (1.5343 –1.5226 / 1.5226) * (360/92) = - .0301

The discount is – 3% percent.
There was lost in this transaction so there is a risk in this transaction.

CHAPTER 6

10. Answer:

a. Calculate the US...