CONFIDENTIAL 2 BM/TEST 1/FIN542/620

Name: ___________________________________________
Matric No.:_________________________________
QUESTION 1
a) You are a foreign exchange dealer at S Bank in Malaysia and one of your customers
ould like to o!tain the ringgit Malaysia "#M) $rices against the Singa$ore dollar "S%). &f
these 'uotations are a(aila!le: #M).*+*,-.,-/S% and S%0.12++-2,-/S%3 determine the
ringgit $er Singa$ore dollar "#M-S%) cross rate 'uotation.
&s there any ar!itrage o$$ortunity if the BBank is trading the /S dollar and S% at the rate
of S%0.124+-+,-/S%5 &f you ha(e /S%1 million to ar!itrage3 ho much $rofit ould you
make5
"1, marks)
!) Mr. Mc 6onalds !uys fi(e futures contract of Siss francs at an o$ening $rice of /S%
,.*+,, on 7cto!er 0130,,8. "9ontract si:e: S;10+3,,,). <e ould close out the contract
to days later. =he closing $rices of the futures contract on 7cto!er 013 00 and 0) are
/S% ,.**4,3 /S% ,.*.8, and /S% ,.*+1+3 res$ecti(ely. <o much is Mr. Mc 6onalds
$rofit or loss on his marked>to>market on the futures contract5
"1, marks)
QUESTION 2
a) ?B9 Sdn Bhd has to !uy and sell currencies at different time $eriods. =he Bank has
$ro(ided the folloing 'uotes on foreign currencies.
S$ot 1>month forard )>month forard
#M ).+2.0-24-/S% ),-4, *0-+*
#M+.)14+-*+-@ *4-20 00-18
i) <o many $ound sterling ould you recei(e if you ha(e #M2,,3,,, today5
"0 marks)
ii) <o many /S dollars can you $urchase for deli(ery in one month ith #M03+,,3,,,5
") marks)
iii) <o many ringgit ould you recei(e if you sell @.+3,,, for deli(ery in three months5
") marks)
i() Ahat is the !id>offer $rice of /S dollar $er @ today5
"0 marks)
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CONFIDENTIAL 3 BM/TEST 1/FIN542/620
QUESTION "
a) Su$$ose in Bangkok3 the s$ot 'uote for @,.)+0,-4+-/S% and B,.02*+-8,-/S%.
i) Ahat is the s$ot 'uote for B-@ in Bangkok5
"0 marks)
ii) &f the /S% as 'uoted at @,.))0+-2+ in ;rance3 hat ould you do to $rofit from this
situation5
"0 marks)
iii) 9om$ute the $ercentage !id>ask s$read on !oth currencies in Bangkok.
"0 marks)
!) You called your dealer and ask for 'uotation on S%-#M s$ot3 1>month and )> month. =he
dealer res$onded ith the folloing:
#M0.0+*2-2+-S% )2-+0 .+-+,
Ahat are the forard outright rates in terms of S% $er #M5
"4 marks)
c) ?n ?merican com$any im$orted goods orth #M+,,3,,, fears that ringgit ill
a$$reciate in the coming months. <e ould like to hedge the risk through o$tions.
7$tions are a(aila!le at to different strike rates from to !anks. Bank ? is offering
/S%,.0.-#M and Bank B is /S%,.0*-#M. =he $remium in !oth cases is /S%,.,,0-#M.
&f he $redicts that the s$ot rate on the maturity ill go u$ to /S%,.0*+-#M3 hich o$tion
should !e chosen5 9alculate his $rofit if his $rediction is correct.
"1, marks)
QUESTION #
a) Ci(en the ex$ected annual inflation rates in Malaysia and /D are 4E and *E
res$ecti(ely and the current !id-ask s$ot rates are #M+.1111-.. -F3 calculate the 1>
year !id-ask s$ot rates according to Gurchasing Goer Garity conce$t.
"0 marks)
!) =he ex$ected annual interest rates in Malaysia and /D are 4E and *E res$ecti(ely
and the one ay current s$ot rate is #M+.1111 - F and the #M ill strengthened !y
0.+E against the British F in 1>yearHs time3 ould Malaysian in(estors in(est at home
or in /D according to &nternational ;isher Iffect $arity condition5 Sho your
calculation.
") marks)
c) &f the ex$ected annual interest rates in Malaysia and /D are 4E and *E res$ecti(ely
and the current one ay s$ot rate is #M+.,,,, - F and the #M ill eakened !y 0.+E
against the British F in 1>yearHs time.
i) Sho if there is an o$$ortunity for co(ered interest ar!itrage according to &nterest
#ate Garity condition.
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CONFIDENTIAL 4 BM/TEST 1/FIN542/620
"0.+ marks)
ii) Aould an ar!itrageur in(est and !orro5
"0.+marks)
iii) 6etermine the $rofit or loss if the ar!itrageur has #M+ million or F1 million.
"1, marks)
EN OF QUESTION $A$ER
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