2. As a currency trader, you have obtained the following quotes from HSBC\'s FX

Question

2. As a currency trader, you have obtained the following quotes from HSBC's FX dealer: S/e Spot 1-m f 3-m f Bid 1.3250 1.3273 1.3311 Ask 1.3265 1.3298 1.3341 a) If you wanted to buy 10 mion 1-month forward, how much would it cost you? b) If you wanted to sell $25 million 3-months forward, how much would you receive? c) If you wanted to buy $25 million 3-months forward, how much would it cost you? d) Compute the spot, 1-month and 3-month forward transaction costs (as a percentage) faced by the customer

Explanation / Answer

Bid price - The bid price represents the maximum price that a buyer is willing to pay for a security.

Ask price = The ask price is what sellers are willing to take for it.

A cost for one month forward =10 million*1.3298=13.298

B Sell $25 million for 3 month = $25*1.3311=$33.2775

C Buy $25 million for 3 month= $25*1.3341=33.3525

D

Percentage Spread = Ask price- Bid price/ Ask Price*100

Spot=1.3265-1.3250/1.3265*100

=0.1130

1 month Forward= 1.3298-1.3273/1.3298*100

=0.1879

3 Month forward= 1.3341-1.3311/1.3341*100

=0.2248

  

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.