Worksheet 2pdf x 2 12 SpotForward Quotations for Euro and Ye

Worksheet 2.pdf x 2 12 Spot/Forward Quotations for Euro and Yen Euro /E) Yen (/S) Spot Mid Bid Ask Mid Bid As 1.0899 1.0897 1.0901 118.32 118.27 118.37 Cash 1 mo 1.0917 17 19 117.82 -51 -50 Rates 3 mo 1.0953 53 54 116.91 -143-140 6 mo 1.1012 112 113 11545 288 -287 9 mo 11075 175 177 114.00 435 429 Swap 2 yr 1.1401 481 522 106.93 -1150 -1129 Rates 3 yr 1.1679 750 810 101.09 -1748 -1698 1/Bid E-Ask A; /AskE-Bid a Spot bid rate in $E? Spot ask rate in $A? Mid rate (bid+ ask) 12; Spot mid rate in $? bid/ask spread (ask rate - bid rate) ask rate bid/ask spread for S/ spot? outright forward quotes: Forward rate points spot rate Yean 9-mouth forward bid rat 9-month forward bid rate Yen 9-month forward ask rate? Bid/Ask spread for Yen 9-month forward? t Appreciating or Depreciating? Calculate the annual % premium/discount on 6 month ¥ forward (using rates provided in the Table above)?

Solution

We are given spot Yen/$ rate as : Bid = 118.27 and Ask 118.37; when the conver this quotation into $/Yen, the for Bid we will divide 1 by 118.37 (Ask rate of Yen/$) and for Ask we will divide 1 by 118.27 (Bid rate of Yen/$), as below:

Spot Bid $/Yen = (1/118.37) = 0.00845

Spot Ask $/Yen = (1/118.27) = 0.00846

Spot Mid rate $/Yen = (0.00845+0.00846)/2 = 0.008452

Bid / Ask spread $/Yen = (0.00846-0.00845)/0.00846 = 0.08%

9 month Yen forward bid rate : the forward points are to be divided by 100 before they can be added to bid (or ask as the case may be). Hence in this case we have = 118.27 + (-435/100) = 113.92

9 month Yen forward ask rate : 118.37 + (-429/100) = 114.08

Bid / Ask spread = (114.08-113.92)/114.08 = 0.14%

Since the value of Yen is increasing per dollar i.e. Yen required to purchase 1 dollar is decreasing, hence Yen is appreciating against dollar.

We will calculate the annual discount basis the mid rates: [(forward rate - spot rate)/spot rate] * (360/number of days in forward contract) * 100 = [(115.45-118.32)/118.32] * (360/180) * 100 = -4.85%