1. Bank of America’s bid price for Belize dollar is $0.764 while the ask price i
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Question
1. Bank of America’s bid price for Belize dollar is $0.764 while the ask price is $0.956. Find the bid/ask percentage spread.
2. Find the bid/ask percentage spread for Bermudian dollar given the ask rate of $0.79 and the bid rate of $0.92.
3. Find the forward discount or premium for Guyanese dollar whose 180-day forward rate is $.502 and spot rate is $.320. Indicate whether your answer is a discount or premium.
4. Find the forward discount or premium for Australian dollar whose 90-day forward rate is $.202 and spot rate is $.285. Indicate whether your answer is a discount or premium.
5. John King boughta call option on Canadian dollars for $.04 per unit with a strike price of $1.95 and the spot rate of $2.00, at the time the option was exercised. Based on the assumption that there are 50,000 units in a Canadian dollar option, find John King’s net profit?
Explanation / Answer
Amswer:
1. Bid Price for Dollar = $ 0.764
Ask Price = $ 0.956
Bid/Ask percentage spread = 100 * ( Ask Price - Bid Price ) / Ask Price
= 100 * ( $ 0.956 - $ 0.764 ) / $ 0.956
= 20%
2. Bermudian Dollar ask rate = $ 0.79
Bid rate = $ 0.92
Bid/Ask percentage spread = 100 * ( Ask Price - Bid Price ) / Ask Price
= 100 * ( $ 0.79 - $ 0.92 ) / $ 0.79
= -16.4%
3. Guyanese dollar whose 180 days forward rate is $ .502 and spot rate is $ .320
180 Days forward rate.........................................$ .502
Less: Spot Rate..........................................................$ .320
Total....................................($ .502 - $ .320).....= $ .182 it is positive
Answer is premium
4. Australian dollar whose 90 days forward rate is $ .202 and spot rate is $.285
90 Days Forward Rate...............................$ .202
Less: Spot Rate..............................................$ .285
Total.......................................( $ 0.202 - $ 0.285 ) = - 0.083 it is Negative
Answer is Discount.
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