Business Homework Solutions
#191989
Currency Derivatives: swap rate, profitable arbitrage
4. An investor wishes to buy Euros spot (at $0.9080) and sell Euros forward for 180 days (at $0.9146).
a. What is the swap rate on Euros?
b. What is the forward premium or discount on 180- day Euros?
7. Suppose the euro is quoted at 0.7064-80 in London and the pound sterling is quoted at 1.6244-59 in
Frankfurt.
a. Is there a profitable arbitrage situation? Describe it.
b. Compute the percentage bid-ask spreads on the pound and euro.
This posting answers questions on swap rates, forward premium/discount, profitable arbitrage & computing the percentage bid–ask spreads.
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