IF-Revision problem series

1.       Convert the direct quotes into indirect quotes: (a) 1$ = Rs.40.00 / 40.05 (b) 1£ = Rs.82.00/82.07 (c) 1Euro = Rs.56.00/ 56.18

2.       Calculate how many rupees a New Delhi based firm will receive or pay for its following four foreign currency transactions:

(i) The firm receives dividend amounting to Euro 90,000 from its French Associate Company.  (ii) The firm pays interest amounting to 2,00,000 Yens for its borrowings from a Japanese Bank.

(iii) The firm exported goods to USA and has just received USD 3,00,000. (iv) The firm has imported goods from Singapore amounting to Singapore Dollars (SGD) 4,00,000.

Given:

1 Re = Euro 0.0178/0.0180 ; 1 Re = Yens 2.50/2,51 ; 1 Re. = $ 0.0249/0.0250 ; 1 Re = SGD 0.040 / 0.041

3.       Calculate how many rupees Shri Ras Bihari Ji Ltd., a New Delhi based firm, will receive or pay for its following four foreign currency transactions:

(i) The firm receives dividend amounting to Euro 1,12,000 from its French Associate Company.

(ii) The firm pays interest amounting to 2,00,000 Yens for its borrowings from a Japanese Bank.

(iii) The firm exported goods to USA and has just received USD 3,00,000.

(iv) The firm has imported goods from Singapore amounting to Singapore Dollars (SGD) 4,00,000.

4.       Calculate how many British pounds a London-based-firm will receive or pay for its following four foreign currency transactions:

a.       The firm receives dividend amounting to Euro 1,00,000 from its French Associate Company.

b.      The firm pays interest amounting to 2,30,000 Yens for its borrowings from a Japanese Bank.

c.       The firm exported goods to USA and has just received USD 3,00,000.

d.      The firm has imported goods from Singapore amounting to Singapore Dollars (SGD) 4,00,000.

Spot rates (per Pound)

Euro                       1.59/1.60

Yen                        230/234

USD                       1.99/2.00

SGD                       3.20/3.21

5.       Spot 1 $ = Rs. 40.00 / 40.10 ; 1 month forward .10 /.11 ; 2 months forward .12/.13 ; 3 months forward .14/.15;  Calculate 1 month, 2 months and 3 months forward rates.

6.       You are given the following $ quotes: Spot Rs 40.50/40.60 ;  2 months forward 0.10/0.20; 3 months forward 0.20/0.10 ; 4 months forward 0.25/0.30

(a) Calculate 2 months, 3 months and 4 months forward rates. (b) What amount you will pay in rupees for purchasing 5,00,000 USD? (c) How many Dollars you will sell to get Rs.5, 00,000? (You have enoughcDollars) (d) Calculate % of discount/premium of Dollars on 3 months and 4 monthscforward rates. Assume (i) You are buying $(ii) You are selling $.

7.       The following foreign currency rates, per Pound, are being quoted in

London Market:

Spot                                       3 months forward            4 months forward

USD                                                 1.6200/1.6220   0.30/0.40 c                         0.40/0.30 c

Canadian Dollars                       1.9000/1.9010   0.40/0.50 c                          0.50/0.40 c

Japanese Yens                            200/205                                1/2                                        2/1

How many Pounds a person will pay for purchasing (i) 1,00,000 USD on spot (ii) 1,00,000 Canadian Dollars on 3 months forward and (ii) 1,00,000 Japanese Yens on 4 months forward?

Answer

(i) 1 £ = $ 1.6200/1.6220  Bank is purchasing £. The applicable rate : 1 £ = $1.62 The person has to pay £(1,00,000 /1.62) i.e. £ 61,728.40

(ii) Spot rate: 1£ =CD 1.9000/1.9010 Swap points = 0.40/0.50 cents = 0.0040/0.0050 CD ; 3 months forward rate: 1£ = CD 1.9040 /1.9060 ; Bank is buying £. Applicable rate 1£ = CD 1.9040

The customer has to pay: £ (1,00,000 /1.0940) = £ 52,521

(iii) Spot rate: 1£ = 200/205 Yens ; 4 months Swap points = 2/1 Yens ; 4 months forward rate: 1£ = JY 198/204 ; Bank is buying £. Applicable rate 1£ = JY 198 ; The customer has to pay: £ (1,00,000 /198) = £ 505.05

8.       A French firm exported certain cosmetic goods to a New York firm, the invoice being $4,00,000, credit terms 30 days. Spot exchange rate: 1$ = 0.80 Euro. Find the gain/loss to the exporter if Euro strengthens by 5% over the 30 days period. What if Euro weakens by 5% during the period. Make calculations in terms of Euro per $. Attempt the question by (a) direct quote (b) indirect quote.

9.       Rs./ £ : 74.00-74.50 (ii) Rs./CHF 26.00- 26.60. Find CHF/£.

10.   An Indian firm is interested in purchasing 5m Chinese Yuan. The following quotations have been given by two different banks.

Bank A :  1 Pound = Rs. 79.89 / 80.00 ; 1 Pound = CY 12.50 / 12.60

Bank B : 1 CY = $0.1598 – 0.1600; 1 $ = Rs.40.00 / 40.05

Advise the Indian firm

11.   Given the following rates, find ‘bid’ and ‘ask’ rates for CY in terms of rupees. 1 USD = 5.7040 – 5.7090 CY ;  1 USD = 40.30 - 40.50 Rupees

12.   Alert Ltd. is planning to import a multi purpose machine from Japan at a cost of 3400 lakhs Yen. The company can avail loans at 18% interest per annum with quarterly rests with which it can import the machine. However there is an offer from Tokyo branch of an India based bank extending credit of 180 days at 2% per annum against opening of an irrevocable letter of credit. Other information:

Present exchange rate Rs. 100=340 yen

180 days forward rate Rs. 100=345 yen

Commission charges for letter of credit at 2% per 12 months. Advise whether the offer from the foreign branch should be accepted? (Nov 96)(Nov. 2008)

Note: Credit from Tokyo Branch is available for 180 days. Considering this fact, we assume

(a) Alert Ltd. requires credit for 180 days i.e. under both the alternatives, all the payments

(Principal, Commission & Interest) will be made after 180 days.

(b) 180 Days = 6 months = Two Quarters.

13.   Excel Exporters are holding an Export bill in United States Dollar (USD) 1,00,000, due 60 days hence. They are worried about the falling USD value which is currently at Rs.45.60 per USD. The concerned Export Consignment has been priced on an exchange rate of Rs. 45.50 per USD. The firm’s bankers have quoted a 60-day forward rate of Rs.45.20. Calculate (i) rate of discount quoted by bank (ii) the probable loss of operating profit if the forward sale is agreed to. ( NOV. 2004)

14.   Spot rate (Switzerland ) 1 $ = 1.3689 / 1.3695 CHF

Spot rate (USA) 1 CHF = 0.7090 / 0.7236 $ ;  You have 1 Million CHF. What amount of profit you can make from arbitrage?

15.   Singapore Spot 1$ = 1.3689 / 1.4150 CHF ; New York Spot 1 CHF = 0.7090 /0.7236 $ ; Can you make profit through Arbitrage?

16.   A person borrowed $1,00,000 @ 8% p.a. for three months, converted the dollars in rupees the dollars in rupees at spot rate 1$ = Rs.46.70 / 46.80. Invested the dollar proceed (i.e. Rupees) @ 12% p.a. for three months. Purchased $ 1,02,000 on 3 months forward basis of $ 1 = 46.75 / 46.86 What is the gain /loss. Assume no loss of time in any transaction.

17.   Spot 1 $ = Rs. 47.00 – 47.20 ; 3 months forward 1 $ = Rs. 47.50 – 47.70 ;  Interest Rates = Rs. 8% p.a., $ 5% p.a. ; Is there opportunity for covered interest arbitrage?

Covered Interest Arbitrage : Let’s borrow $ 1,00,000. Convert into Rs. 47,00,000. Invest @ 8 % p.a. for 3 months. Repayment along with interest after 3 months = $

1,01,250. Enter into forward purchase contract of $ 1,01,250 @ Rs. 47.70.

18.   Spot rate 1 $ = Rs. 48.0123 ;  180 days forward rate 1 $ = Rs. 48.8190 ;  Annualized rate for 6 months – Rupee – 12% ; Annualized rate for 6 months - $ - 8% ; Is there any arbitrage possibility ? If yes, how can the arbitrageur take advantage of the situation, if he is willing to borrow Rs. 40,00,000 or $ 83,312. (Nov. 2006 )

19.   Spot 1 $ = Rs. 47.00 – 47.20 ; 3 months forward 1 $ = Rs. 47.50 – 47.70 ;  Interest Rates = Rs. 8% p.a., $ 5% p.a. ;  Is there opportunity for covered interest arbitrage? Is there arbitrage opportunity?

20.   Followings are the spot exchange rates quoted in three different forex markets:

USD/INR 48.30 in Mumbai

GBP/INR 77.52 in London

GBP/USD 1.6231 in New York

The arbitrageur has USD 1,00,00,000. Assuming that there are no transactions cost, explain whether there is any arbitrage gain possible from the quoted spot exchange rates. (Nov. 2008)

22. The following 2-way quotes appear in the foreign exchange market: Spot 2-months forward ;  RS/US $ Rs.46.00/Rs.46.25 Rs.47.00/Rs.47.50

Required: (i) How many US dollars should a firm sell to get Rs.25 lakhs after 2 months? (ii) How many Rupees is the firm required to pay to obtain US $ 2,00,000 in the spot market? (iii) Assume the firm has US $ 69,000 in current account earning no interest. ROI on Rupee investment is 10% p.a. Should the firm encash the US $ now or 2 months later? (June 2008 )

21.   You have following quotes from Bank A and Bank B:

Bank A                                  Bank B

SPOT                           CHF/USD 1.4650/55                        CHF/USD 1.4653/60

3 months                                   5/10

6 months                                   10/15

SPOT                           USD/GBP 1.7645/60                        USD/GBP 1.7640/50

3 months                                   25/20

6 months                                   35/25

Calculate : (i) How much minimum CHF amount you have to pay for 1 Million GBP spot? (ii) Considering the quotes from Bank A only, for CHF/GBP what are the Implied Swap points for Spot over 3 months? (Adapted June 2009)

22.   1 USD = £ 0.6184 1 USD = CHF 1.3733 1 USD = Yens 105 Derive direct quotes in UK and Japan for various foreign currencies.

                                USD       YEN                        CHF

23.   1 USD          1             83.65                    1.3733

1 YEN          ?             1                             ?

1 CHF          ?              ?                              1

24.   Your bank wants to calculate selling rate of DM, when : Euro 1 = DM 1.9558 (locked in rate)  Euro 1 = $ 1.0238/43 $ 1 = Rs. 48.51/53 ; 1 Euro = DM 1.9558 / 1.9558 (DM/Euro)

25.   Spot rates of a particular day in New York are as follows : 1 Pound = 2$ ;  1 Pound = 4.80 Swiss Franks

On the same day in Geneva 1 Swiss Frank was quoted at $ 0.40. Is there some arbitrage opportunity? If yes, please explain.

26.   In the International Money Market, an international forward bid for DEC.15 on Pound sterling is $ 1.2816. At the same time the price of IMM sterling future for delivery on Dec. 15 is $ 1.2806. The contract size of pound sterling is Pounds 62,500. How could the dealer use arbitrage in profit from this situation and how much profit is earned? (Nov. 2002 CA Final )

27.   An Indian exporting firm, Rohit and Bros, would cover itself against a likely depreciation of Pound sterling. The following data is given : Receivables of Rohit and Bros: £ 5,00,000. Spot rate Rs.56/£

3 months interest rate: India: 12% p.a. UK : 5% p.a. What the exporter should do? (Nov 2008 SFM)

28.   The rate of inflation in USA is likely to be 3% p.a. and in India it is likely to be 6.50%.

The current spot rate of US $ in India is 43.40. Find the expected rate of US $ in India after 1 year and 3 years from now using purchasing power parity theory. (Nov 2008 SFM)

29.   Today the Foreign exchange rate is 1.90$ per Pound. The one year forward is quoted at 2$ per pound. In which currency the interest is higher, Pound or Dollar?