Fin670B (ST 16)

Problem Set # 2 (Due: 3/26/16)

1. If a swap quote on euro ($/) is $1.1050-60 6-8, what is the outright
forward rate? Is the forward rate quoted at a premium or discount?
2. Using the following market information, answer the questions below:
Spot exchange rate (C$/$):
Three-month forward rate (C$/$):
US interest rate:
C$ interest rate:
3%

1.0485
1.0550
2%

(a)Calculate the three-month equilibrium forward rate for US$

(b)Using the equilibrium forward rate, calculate the forward
premium/discount on the US$.
(c) Does the information provided above offer any arbitrage opportunity?
(d)If yes to (c), calculate the profit an arbitrager can lock in.