Wong

The Chinese University of Hong Kong CUHK Business School FINA3020 International Finance

Assignment 1 (Due Date: 5:00pm, 6 February 2015) Question 1 Hang Seng Bank quotes bid-ask rates of USD/EUR 1.3005 – 1.3007 and JPY/USD 104.30 – 104.40. What would be Hang Seng Bank’s direct asking price of JPY/EUR?

Question 2 A bank is quoting the following exchange rates against the dollar for the Swiss franc and the Australian dollar: CHF/USD = 1.5960 – 70 AUD/USD = 1.7225 – 35 A Swiss firm asks the bank for a CHF/AUD quote. What cross-rate would the bank quote?

Question 3 Given the following information, what are the NZD/SGD currency against currency bid-ask quotations? American Terms Bid Ask 0.7265 0.7272 0.6135 0.6140 European Terms Bid Ask 1.3751 1.3765 1.6287 1.6300

Bank Quotations NZD SGD

Question 4 You specialize in cross-rate arbitrage. You notice the following quotes: CHF/USD = 1.5971 AUD/USD = 1.8215 AUD/CHF = 1.1440 Ignoring transaction costs, do you have an arbitrage opportunity based on these quotes? If there is an arbitrage opportunity, what steps would you take to make an arbitrage profit, and how much would you profit if you have USD 1,000,000 available for this purpose?

Question 5 Omni Advisors, an international pension fund manager, plans to sell equities denominated in Swiss francs (CHF) and purchase an equivalent amount of equities denominated in South African rands (ZAR). Omni will realize net proceeds of 3 million CHF at the end of 30 days and wants to eliminate the risk that the ZAR will appreciate relative to the CHF during this 30-day period. The following exhibit shows current exchange rates between the ZAR, CHF, and the USD. ZAR/USD Maturity Spot 30-day 90-day Bid 6.2681 6.2538 6.2104 Ask 6.2789 6.2641 6.2200 Bid 1.5282 1.5226 1.5058 CHF/USD Ask 1.5343 1.5285 1.5115

(a) Describe the currency transaction that Omni should undertake to eliminate currency risk over the 30-day period. (b) Calculate the CHF/ZAR cross-currency rate...