1.(a) Suppose the spot exchange rate between the Swedish Krona (SKr) and the Bri
ID: 2612610 • Letter: 1
Question
1.(a) Suppose the spot exchange rate between the Swedish Krona (SKr) and the British pound (GBP) is the one under Key Currency Cross Rates in the quotes from the Wall Street Journal (WSJ) provided below. The 30-day SKr/GBP forward rate calculated is included. Suppose you hedge against currency risk on foreign currency receivables of SKr 1million as a British exporter using the forward rate. How many GBPs will you get in 30 days?
1.(b) Now, suppose the spot exchange rate quote is not from the Wall Street Journal as above, but a Swedish trader quoting 3.3539- 66 SKr/GBP. Suppose at these rates, the trader buys 1 million GBP in the spot market, and sells them in the 30-day forward market, what is the trader's return on the GBP investment?
WSJ Data: The spot exchange rate is 3.3539 SKr/ GBP.
The 30-day forward rate is 3.3559 SKr/ GBP.
Explanation / Answer
Answer 1(a)
30 day forward rate is 3.3559 SKr/ GBP
Hence I will receive 297982.657 GBP after 30 days
Answer 1 (b)
Spot Rate
Hence Trader will get 2000 SKr Profit
2000 SKr=2000/3.3559
=595.9653 GBP
3.3559 SKr = 1GBP 1000000 SKr=1000000/3.3559 = 297982.657 GBPRelated Questions
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