Practice Set 3

INDIVIDUAL ASSIGNMENT (Prof. K Parmeshwaram)

Inter-bank exchange rate schedule

Currency	Spot	Forward
London market quotes
		One month	Three month	Six month
GBP/USD	1.5915/20	22/21	61/60	123/120
EUR/USD	1.3240/45	05/10	20/30	35/40
USD/CHF	0.9990/95	20/15	30/20	45/40
USD/JPY	80.05/10	50/45	105/100	150/145
USD/NOK	5.8450/75	10/15	45/50	80/85
Singapore inter bank
USD/SGD	1.3240/50	10/15	30/35	40/45
USD/THB	32.36/38	20/25	35/38	60/65
Mumbai interbank
USD/INR	44.40/41	25/26	60/62	105/110

1. One of the leading shipping companies in India has ordered for a cargo vessel with a Norwegian shipping compnay. Value of the cargo vessel is NOK 6 mn. Payment will be due in the month of May 2011. The company wants to book 6 months forward contract. What will be the INR outflow on the due date? Bank will be loading INR 0.03 as their profit margin. (3 paise)

USD/INR USD/NOK

Working: Spot exchange rate: 44.41 + 5.8450 +

FWD differentials 01.10 0.0080

FWD rate: 45.51 5.8530

NOK/INR 45.51/5.8530 = 7.7755

Profit margin: 0.0300

Merchant Rate: 7.8055or 7.81

Total Rupee outflow: 6,000,000 x 7.8055

= Rs.46,833,000 or

= Rs.46,860,000

2. You have availed a medium term loan in JPY. You want to remit the loan amount from your SGD account with OCBC, Singapore. Find out the conversion rate. (spot rate to be worked out)

Loan repayment in JPY.

Spot exchange rate for JPY/SGD = 1.3250/80.05 = 0.01655

or

SGD/JPY = 80.05/1.3250 = 60.4150

3. One of the companies in Bangkok has placed an order for import of capital equipments from Germany. Contract will be due for payment in the month of Feb 2011. Find out the cross rate for EUR/THB for 3 months FWD.

Import payment in EUR against THB

Conversion will be THB to USD and USD to EUR

USD/THB EUR/USD

Spot 32.38+ 1.3245+

FWD differentials for 3months 00.38 0.0030

FWD exchange rate 3^rd month 32.76 1.3275

Cross rate for EUR/THB = 1.3275 x 32.76 = 43.4889

4. Your company wants to take over one of the British companies. Take over price is fixed as GBP 5 mn. Your investments are in CHF. You wish to remit GBP 5 mn from your CHF account. Find out GBP/CHF cross rate.(spot rate)

Spot rate for GBP/CHF for outward remittance:

Spot rate ; USD/CHF GBP/USD

0.9995 1.5920

GBP/CHF 1.5920 x 0.9995 = 1.5912

For GBP5mn = 5,000,000 x 1.5912 = CHF7,956,000

5. With the following market information, arrive at the forward differentials:

Currency	Spot
EUR/USD	1.3500/50

Present LIBOR for 6 months: (annualized)

Currency	INTEREST RATES BID /OFFER
USD	2.50/3.00%
EUR	2.00/2.25%

Find out the forward exchange rates for EUR/USD for 6 months for export receivables

EUR	USD
Borrow EUR 1 @ 2.25 for 6 months: Principal: 1.00000 Interest: 0.01125 Total outflow 1.01125	Invest USD 1.3500 @ 2.50% for 6 months: Principal: 1.35000 Interest: 0.016875 Totalinflow 1.366875
1.00125 EUR = 1.366875 USD 1 EUR – 1.366875/1.00125 = 1.35166
Applying the formula: (1 + 2.5/2 x100) 1.3500 x -------------------- (1 + 2.25/2 x100)

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