Question

You have just started working as a trader for Credit Suisse in​ New York. The following are quotes for Japanese (JPY) against the dollar (USD) for​ spot, 1 month​ forward, 3 months forward, 6 months forward and one year forward. All the rates are quoted as the number of JPY per USD.

Spot exchange​ rate:
The bid rate is 128.02 JPY​ per USD
Ask Rate is 128.06 JPY per USD

Forward points:
1 month forward 12 - 09
3 months forward 46 - 41
6 months forward 102 - 92
1 year forward 204 - 184

Q 1 & Q 2 combined: A customer TBI International inc calls you and asks you for the exchange rate at which they can sell to you 500 Mio JPY for delivery 3 months forward.

Q 1: What exchange rate do you quote? Give your answer to 2 decimal places.

Q 2: How much USD will the customer TBI International inc receive in 3 months' time in exchange for the 500 Mio JPY? Give your answer to the nearest USD.

Answer 1

The exchange rate quoted to sell 500 Mio JPY for delivery 3 months forward is 127.61 JPY per USD. The customer TBI International inc will receive approximately 498,801,692.09 USD in 3 months' time.

Step-by-step explanation:

To determine the exchange rate at which the customer TBI International inc can sell 500 Mio JPY for delivery 3 months forward, we need to calculate the forward exchange rate using the given forward points.

The bid rate for 3 months forward is 41, so we subtract this value from the spot bid rate of 128.02 to get the forward bid rate. This gives us a forward bid rate of 128.02 - 0.41 = 127.61 JPY per USD.

To calculate the amount of USD that the customer TBI International inc will receive in 3 months' time in exchange for the 500 Mio JPY, we multiply the amount of JPY by the forward bid rate. 500,000,000 JPY * 127.61 JPY per USD = 63,805,000,000 JPY.

Converting this amount to USD using the spot ask rate of 128.06 JPY per USD, we get 63,805,000,000 JPY / 128.06 JPY per USD = 498,801,692.09 USD.

Therefore, the customer TBI International inc will receive approximately 498,801,692.09 USD in 3 months' time.

Answer 2

TBI International Inc. will receive an exchange rate of 127.56 JPY per USD for a 3 months forward contract and will obtain approximately 3,920,577 USD in exchange for their 500 million JPY.

Step-by-step explanation:

To calculate the 3 months forward exchange rate at which TBI International Inc. can sell Japanese Yen (JPY) to Credit Suisse, we first determine the bid rate for the currency exchange. The spot bid rate is 128.02 JPY per USD, and the 3 months forward points are 46 - 41. Since the customer wants to sell JPY to the bank, we use the bid side of the forward points which is 46. The forward bid rate is calculated by subtracting the forward points from the spot bid rate: 128.02 - 0.46 = 127.56 JPY per USD.

For the second part of the question, to compute how much USD TBI International Inc. will receive, we take the amount of JPY to be exchanged (500 million) and divide it by the 3 months forward bid rate:

500,000,000 JPY / 127.56 JPY per USD ≈ 3,920,577 USD

Therefore, TBI International Inc. will receive approximately 3,920,577 USD for their 500 million JPY in 3 months' time.