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International Finance Bonus Foward Ex

Group 4 chose to analyze the currency pair of SGD and USD. [1] They found the spot exchange rate on April 3, 2020 to be SGD 1.44/$ or $0.694/SGD. [2] They also found the eurodeposit rates for SGD and USD to be 0.375% and 0.4% respectively as of April 6, 2020. [3] Using these inputs, they calculated the 3-month, 6-month, and 1-year forward rates for USD/SGD to be $0.69448/SGD, $0.69452/SGD, and $0.69461/SGD respectively.

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56 views2 pages

International Finance Bonus Foward Ex

Group 4 chose to analyze the currency pair of SGD and USD. [1] They found the spot exchange rate on April 3, 2020 to be SGD 1.44/$ or $0.694/SGD. [2] They also found the eurodeposit rates for SGD and USD to be 0.375% and 0.4% respectively as of April 6, 2020. [3] Using these inputs, they calculated the 3-month, 6-month, and 1-year forward rates for USD/SGD to be $0.69448/SGD, $0.69452/SGD, and $0.69461/SGD respectively.

Uploaded by

ThạchThảoo
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Group Submitter: Group 4

Bonus-Point Question 8
1. Choose a pair of currency (Register your group pair of currency in discussion box).

2. Find the spot exchange rate of that pair.

3. Find the eurocurrency deposit rate of 2 countries associated with that pair.

4. Calculate Forward rate matured in 3 months, 6 months and 1 year.

5. Compare your calculated forward rate with the market forward rate using this
link: https://www.investing.com/rates-bonds/forward-rates.

Answer:

Two currencies used to solve this problem include SGD (Singapore Dollar), and USD (US
Dollar). Based on the information from https://www.poundsterlinglive.com/bank-of-england-
spot/historical-spot-exchange-rates/usd/USD-to-SGD-2020, Spot Exchange Rate of this pair is
equal to SGD 1.44/$ or $ 0.694/SGD (1/1.44 =0.694) in April 3,2020, also with the source
https://www.hkbea.com/cgi-bin/rate_fcdr.jsp?language=en, Euro-USD deposit interest rate per
year is 0.4%, and Euro-SGD deposit interest rate per year is 0.375% as of April 6, 2020.

Therefore, we have:

S = $ 0.694/SGD.

I_SGD = 0.375% p.a.

I_USD= 0.4% p.a.

Hence,

A) The Forward rate matured in 3 months is:

F_$/SGD (90 days) = $ 0.69444/SGD * ((1+ I_USD *(90/360))/ (1+ I_SGD*(90/360))

F_$/SGD (90 days) = $0.69448/SGD

B) The Forward rate matured in 6 months is:

F_$/SGD (180 days) = $ 0.69444/SGD * ((1+ I_USD *(180/360))/ (1+


I_SGD*(180/360))

F_$/SGD (180 days) = $0.69452/SGD

C) F_$/SGD (360 days) = $ 0.69444/SGD * ((1+ I_USD *(360/360))/ (1+


I_SGD*(360/360))

F_$/SGD (360 days) = $0.69461/SGD


Group Submitter: Group 4

Comparing with market forward rates sourced from https://www.investing.com/rates-


bonds/forward-rates, the calculated 3-month forward rate USD/SGD is $0.69448/SGD,
while the ask price of USD/SGD 3M FWD was the only number with positive rate at
18.5. Also, the calculated 6-month forward rate USD/SGD is $0.69452/SGD, but that
forward rate of market was totally negative, with the ask price at -25.0 and the bid price
at -28.5. About the 1-year forward rate, our estimation indicates that rate with
$0.69461/SGD, whereas both the bid and ask price were negative as the 6-month market
forward rate, at -47.0 and -27.0 respectively.

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