Question Question 4 (9 marks) a. (4 marks) The Bank of England (BOE) which is the central of the UK announced that it would slow down the pace of increasing interest rate because there was sign that the labour market was slowing down. The market quote for GBP (with bid and ask) is: GBP 1.1954 / 1.1967 What would you do if you want to trade according to the news? State which currency you buy and which currency you sell. What is the rate you are going to deal at? (Show workings) b. (5 marks) You will need to pay a EUR bill for goods imported from Italy in 3 months. You have USD and want to fix the exchange rate today by using forward. You get a market quote (with bid and ask) of: Spot EUR/USD 1.0655 / 1.0673 3-month swap points 55.59 / 62.09 State which currency you buy and which currency you sell. What is the rate you are going to deal at? (Show workings)
Question 4 (9 marks)
a. (4 marks) The Bank of England (BOE) which is the central of the UK announced that it would slow down the pace of increasing interest rate because there was sign that the labour market was slowing down. The market quote for GBP (with bid and ask) is: GBP 1.1954 / 1.1967 What would you do if you want to trade according to the news? State which currency you buy and which currency you sell. What is the rate you are going to deal at? (Show workings)
b. (5 marks) You will need to pay a EUR bill for goods imported from Italy in 3 months. You have USD and want to fix the exchange rate today by using forward. You get a market quote (with bid and ask) of: Spot EUR/USD 1.0655 / 1.0673 3-month swap points 55.59 / 62.09 State which currency you buy and which currency you sell. What is the rate you are going to deal at? (Show workings)
【General guidance】The answer provided below has been developed in a clear step by step manner.Step1/1a. If you want to trade based on what's happening in the news, you'd have to sell GBP and buy USD. The rate you will trade at is 1.1967, which is the ask rate of the GBP/USD market quote. This means that you could buy one US dollar for 1.1967 British pounds.Here's how to figure out the rate at which you will deal:1 GBP = 1.1967 USDSo, 1 USD can be bought for 1.1967 GBP.Expla ... See the full answer