Questions Set 73:

Solution

1. The Wall Street Journal reported the following spot and forward rates for the Swiss franc ($/SF) in june of 2009:

Spot……………………$0.8466
30-day forward………………$0.8504
90-day forward………………..$0.8540
180-day forward………………$0.8587

• Was the Swiss franc selling at a discount or premium in the forward market?
• What was the 30-day forward premium (or discount)?
• What was the 90-day forward premium (or discount)?
• Suppose you executed a 90-day forward contract to exchange 100,000 Swiss francs into U.S. dollars. How many dollars would you get 90 days hence?
• Assume a Swiss bank entered into a 180-day forward contract with Citicorp to buy $100,000. How many francs will the swiss bank deliver in six months to get U.S. Dollars?