Harvard Business School 9-287-033 Rev. September 5, 1991 The Foreign Exchange Market: Background Note and Problem Set International finance plays a large though often hidden role in all of our lives. Whether we are driving to work in a Japanese car, wearing clothes tailored in Hong Kong, or having a German beer before dinner, we are using products originally purchased with currencies traded through the foreign exchange market. An understanding of this market is essential to firms that operate globally because they are exposed to foreign currency fluctuations. Moreover, the market has grown substantially in recent years because of floating exchange rates, deregulation, and the advancement of communication technology. Though it is difficult to measure the size of the foreign exchange market, in 1985 the Group of Thirty research organization estimated the daily foreign exchange turnover at $150 billion. By 1986, however, a survey of the central banks from the United States, the United Kingdom, and Japan reported that daily turnover in the top three centers alone was $188 billion. Continued reform will make the foreign exchange market an increasingly innovative and exciting arena in which to participate. Market Participants The foreign exchange market involves participants buying and selling currencies all over the world. Elaborate communication systems, including telephones, telexes, computers, and news wires link individuals worldwide. Trading takes place throughout most of each day, starting in Tokyo; moving west to Singapore and Hong Kong; continuing to Zurich, Frankfurt, and London; and then ending in New York, Chicago, and San Francisco. Participants in the market include individuals, corporations, commercial banks, and central banks. Each has different motives for transacting. Commercial banks with large foreign exchange sales and trading departments act as dealers when they buy and sell foreign exchange for clients. Their clients, usually corporations, need to transfer purchasing power to and from other countries in order to buy foreign goods and services and to invest in foreign assets. Commercial banks profit from the spread between buying currencies low at a “bid” price and selling them at a higher “ask“ or “offer” price. Individual speculators profit when there is a change in general price levels, and they have predicted the change better than the market. Individuals, including tourists, importers, and exporters, use the foreign exchange market to conduct trade or investment transactions. Research Associate Richard P. Melnick and Professor W. Carl Kester prepared this case as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. Copyright © 1987 by the President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http: / /www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. 287-033 The Foreign Exchange Market: Background Note and Problem Set Central banks have two official reasons for participating in the foreign exchange market: 1) to monitor the market; and 2) to intervene for purposes of policy implementation. A central bank might intervene, for example, to smooth out extreme currency fluctuations or to meet obligations under formal agreements such as the European Monetary System (EMS).1 A striking example of the central banks’ ability to influence the market was the Group of Five’s effort to depreciate the dollar in September 1985. Through the sale of billions of dollars, the dollar depreciated 35% in ten months. Intervention on this scale was unprecedented. Profiting on their currency reserves has increasingly become an additional motive for some central banks to enter the foreign exchange market. The Soviet Union, acting through their Vneshtungbank trade bank, reportedly has been so profitable in its foreign exchange dealings that many suspect information leaks from the U.S. Commerce Department and the German Bundesbank.2 Central banks can act discreetly or conspicuously, and they often exploit the market power derived from their mere threat of action. The Bank of England is reported to be the most professional bank and has cleverly used the market to discourage speculation against sterling. The German Bundesbank is considered sophisticated, but with a somewhat tarnished reputation as it has been thought to give domestic banks advantageous information. By telling their national banks outright what to do, the Bank of Japan acts aggressively without trading directly. Traders generally like to avoid the U.S. Federal Reserve Bank whose intervention is often thought to be clumsy and inept.3 A 1986 survey of the United States, United Kingdom, and Japanese central banks shows that London, New York, and Tokyo, with $90 billion, $50 billion, and $48 billion, respectively, in estimated daily turnover are the leading foreign exchange centers. London is the world’s largest foreign exchange center because it has several advantages: history, geography, and a healthy regulatory environment. Expertise and tradition go back to the days when the pound was the most widely traded currency. More important, however, is the fact that London can trade with Tokyo and Hong Kong in the morning and New York in the afternoon, as well as Frankfurt and Zurich continually. Trading has increased substantially since 1979 when foreign exchange regulation decreased and banks were permitted to trade directly rather than through brokers. Tokyo’s foreign exchange market has grown dramatically from an estimated daily turnover of only $8 billion in 1985. Under pressure from the United States, the Japanese have also decreased market regulation and have thereby surpassed Hong Kong and Singapore in average daily turnover. New York’s foreign exchange system grew during much of the early 1980s, but suffered under the weak dollar of 1986 and the increased power of European central banks. Nonetheless, the greatest volume occurs in the European afternoon when New York is open. Because of the deep market, this is the safest time to execute large transactions. 1The European Monetary System is an organization composed of all the European Economic Community members. It was founded in 1979 to stabilize exchange rates among the European countries. Their currency basket, called the European Currency Unit (ECU), is composed of a predetermined quantity of each currency, where the components reflect each member’s relative size. Each nation’s currency may not deviate from the ECU by more than 2.25% (the British pound does not follow the ECU restrictions), but the ECU itself floats against the rest of the world. 2Henry Sender, “Games Central Banks Play with Currencies,” Institutional Investor (November 1985): 100-110. 3Ibid., 108. 2 The Foreign Exchange Market: Background Note and Problem Set 287-033 The Spot Market The spot exchange rate allows for the buying and selling of foreign exchange with settlement in two business days, known as the value date. According to the aforementioned central bank survey, spot transactions accounted for 73% of all business in London and 63% in New York. Spot rates are quoted in terms of both currencies in the Wall Street Journal, one just being the reciprocal of the other. On September 2, 1986, for example, the spot rate for Swiss francs against U.S. dollars was SF=$0.60994, and the cost of the U.S. dollars was therefore 1 / .60994 or 1.6395 Swiss francs. Quotes are said to be direct or indirect. A direct quote is the price of a foreign currency unit in terms of the home currency. According to the previous example, the direct quote for Swiss francs in the United States was $0.60994. An indirect quote is the price of a unit of home currency measured in the foreign currency. Thus, the indirect quote for Swiss francs in the United States is SF1.6395. With this system, a quote’s definition depends on the country of reference. To clarify this ambiguity, New York bankers established the European terms convention, which uses the U.S. dollar as the common denominator. Thus, traders in the United States, Switzerland, or any other country would all quote Swiss francs as SF1.6395 /$. The exceptions to this rule are British sterling and the currencies of several former Commonwealth countries including Australia and New Zealand. The exceptions exist because the pound was formerly not a decimal currency and it was easier to quote sterling in terms of other currencies. Today, these currencies are still quoted around the world in “American terms,” which is the number of dollars per unit of their currencies. Cross Rates and Triangular Arbitrage If a Swiss bank wants German marks, it could get a rate of Swiss francs per deutsche mark from a German bank. From the perspective of dealers in a dollar-based market, this quote would be a cross rate. These rates can be given with either currency serving as denominator and they are most common among the Western European currencies. These cross rates are typically used by central banks of countries in the EMS trying to determine when they need to intervene. Cross rates should equal the rates resulting from conversion to and from U.S. dollars (except for small differences attributable to transactions costs). Before using a cross rate, it is useful to see if transacting through dollars as an intermediate currency yields a different rate. For instance, if a dealer offers a dollar for 6.6625 French francs or 2.0320 deutsche marks, then the cross-offer rate should be 3.2788 French francs per deutsche mark. With bids of FF6.6575 and DM2.0310 per dollar, the corresponding cross-bid rate would be 3.2779. If the cross-bid rate were actually 3.3000 French francs per deutsche mark, traders could engage in “triangular arbitrage” to devalue the cross rate and push the system into equilibrium. Traders would take the following three steps: 1) sell DM1,000,000 (the “overpriced” currency) for French francs at a cross rate of 3.300 French francs per deutsche mark and receive FF3,300,000; 2) sell French franc holdings against dollars at a spot offer rate of FF6.6625 per dollar and receive $495,310; and 3) sell U.S. dollar holdings against deutsche marks at a spot rate of 2.0310 deutsche marks per dollar and receive DM1,005,975. The potential for this profit of DM5,975 would erode quickly as deutsche marks are sold against French francs at the overvalued cross rate. Newspapers usually give only the bid rates or estimates at the midpoint of dealer spreads under European terms (except for sterling), while actual dealers give buying and selling quotations. “Offer” or “ask” rates under European terms will be higher than bid rates since dealers will want to sell dollars at a higher price than that at which they buy dollars. The difference between the two rates is usually quite small. For example, Citicorp could buy French francs (sell dollars) at FF6.6675 per U.S. dollar and sell francs (buy dollars) at FF6.6625 per U.S. dollar. The spread is FF0.0050 or 50 3 287-033 The Foreign Exchange Market: Background Note and Problem Set points, where a “point” refers to the quote’s last digit.4 Though the bank’s spread might be as small as 0.0005 of the transaction value, this is how banks profit in the foreign exchange market. With a more typical 10-point spread, bank revenues on $1 billion of transactions could be $1 million. The spread travellers experience can be ten times as high because executing their many small transactions requires higher inventory carrying costs and virtually the same amount of paperwork as that of large transactions. The Forward Market When business deals require individuals and corporations to pay or receive foreign currency in the future, they often prefer to transfer the risk that currency values will change. The forward market allows corporations to establish the exchange rate between the two currencies for settlement at a fixed future date. This is known as hedging or covering foreign currency exposure. The forward rate is fixed at the time the contract is made, but payment and delivery are not made until the value date. Forward contracts are often negotiated against dollars, though European traders also exchange domestic European currencies against each other. The most frequent forward contracts are for one, two, three, six, or twelve months. Banks actively trade in these markets both for their customers and for themselves. “Odd dated” forward contracts (i.e., maturities other than the most common ones) are possible, but they are more expensive because of the thinner market. Long-dated forwards and special quotes can be arranged for up to ten years with major currencies. The ratio at which two currencies will be exchanged on a future date is known as the outright forward rate. These rates are usually printed in newspapers and are used by banks when dealing with their clients. Foreign exchange traders like to abbreviate, however, and quote forward premiums or discounts in terms of points.5 A dollar premium implies that forward dollars are at a premium over spot, and the French, for example, need more French francs to buy dollars forward than to buy dollars spot. Similarly, a dollar discount means one needs fewer units of foreign currency to buy dollars forward than to buy dollars spot. In order to tell if a currency is at a premium or a discount, compare the size of the forward bid points with the forward ask points for a given maturity. If the forward bid points are higher than the forward ask points, the U.S. dollar is at a forward discount. For example, if the three-month forward points for deutsche mark are 38 /35, then the forward bid points of DM0.0038 are greater than the forward ask points of DM0.0035 and the forward market is at a dollar discount. Similarly, if the three-month forward points on French francs are 50 /55, the bid is smaller than the ask, and the dollar is at a forward premium. To calculate the outright forward rate, one needs to know if the U.S. dollar is at a premium or a discount. Looking at the forward bid-offer points, if forward bid points are greater than the offer points, the currency is at a U.S. dollar discount, and the trader should subtract the forward bid-offer points from the quoted spot rates. If the forward bid points are less than the forward offer points, the 4A “point” or “pip” can refer to 2, 4, 6, or any number of decimal places. If the Japanese yen were quoted in American terms with an ask of $0.001235 and a bid of $0.001230, this would still be considered a 5-“point” spread. 5Dealers often do not use the decimal point for forward bid-offer points. Whether talking on the phone or placing quotes on a screen, traders give the complete first bid of the spot quote (e.g., FF6.6575). All that is given for the ask, however, are the digits that differ from the bid (i.e., 75). A slash ( / ), communicated orally by the word “to,” separates the bid and ask quotes. Thus a spot quotation for the French franc might appear on a screen as 6.6575 /625, implying an offer rate of 6.6625, and the corresponding three-month forward rate would be represented as 263 /296. One adds these points to the last three digits of the spot rate to get the outright forward quote. 4 The Foreign Exchange Market: Background Note and Problem Set 287-033 currency is at a dollar premium, and the trader should add the forward points to the respective spot points. Forward quotes can also be presented as a percent-per-annum deviation from the spot rate. By convention, the formula for calculating forward premiums and discounts as percentages using European terms, with n equal to the number of months in the contract, is: Forward premium or discount (%p.a.) = spot rate-forward rate x 12 x 100 forward rate n Using spot and three-month forward quotes for deutsche marks of 2.2605 and 2.2406, respectively, we would have: 2.2605-2.2406 x 12 x 100 = 3.55% 2.2406 3 When using American terms, the formula changes as follows: Forward premium or discount (%p.a.) = forward rate-spot x 12 x 100 spot n Thus, in the above example we would have: .4463-.4424 x 12 x 100 = 3.53% .4424 3 This differs from the percentage using European terms only by a rounding error. Covered Interest Arbitrage Many factors explain the changing values of foreign currencies relative to the U.S. dollar. Spot rates can be quite volatile, influenced by news, rumors, speculation, supply and demand imbalances, and central bank intervention. Over the long run, spot rates are affected by relative interest rates and inflation rates, trade imbalances, and purchases or sales of foreign assets. Perhaps the dominant factor influencing the forward rate of a currency relative to its spot rate is the difference between nominal interest rates on foreign currency-denominated investments and comparable U.S. dollar investments. Investors will compare interest rates around the world in pursuit of the best possible return for a given level of risk. Large banks and corporations seeking short-term use of cash will generally look at Eurodeposit rates since such deposits are quite accessible, secure, and competitively priced because of the less-regulated nature of the Eurodeposit market. However, the highest nominal Eurodeposit rate does not necessarily imply the highest expected yield in home currency terms. If the currency in which the deposit is made depreciates against the home currency, then the actual yield on the deposit in home currency terms will be less than the quoted nominal yield. For example, a one-year Eurofranc deposit may offer a yield of 11 5 /8% compared to a one-year Eurodollar deposit offering 7 7 /8%. But if the franc depreciates by 3.36% or more, the interest rate difference favoring the franc will have been completely offset from a U.S. dollar perspective. The depositor could hedge this risk by selling francs (purchasing dollars) forward at the prevailing market exchange rate, thus locking in the future rate at which the principal plus interest can be converted to dollars. In principle, assuming an efficiently operating foreign exchange market, the prevailing one-year forward contract rate for French francs will reflect the market’s collective judgment about what the spot rate will be one year later. In other words, the current forward rate should be an unbiased predictor of the future spot rate, a condition known as forward parity. 5 287-033 The Foreign Exchange Market: Background Note and Problem Set Because money can flow quickly and in large volume from one Eurocurrency deposit to another, and because forward rates may be thought of as unbiased predictors of future spot rates, Eurodepositors aggressively seeking the highest effective return (including expected exchange rate movements) should drive Eurodeposit rates, spot exchange rates, and forward exchange rates into an interdependent relationship in which expected yields are identical across currencies. This condition is known as interest rate parity. It can be expressed notationally by the following equation: F=S (1 + RF) (1 + R$) where, F = the forward exchange rate expressed as units of foreign currency per dollar (European terms); S = the spot exchange rate expressed as units of foreign currency per dollar; R$ and RF = the Eurodollar deposit rate and the other Eurocurrency deposit rate, respectively. If this condition is violated, a covered interest arbitrage opportunity will present itself (for this reason, the above equation is also frequently referred to as the “covered interest arbitrage” condition). For example, consider the terms presented in Table 1. Table 1 Spot 3-Month Forward French Franc 7.7150/200 300/425 3 Mo. Eurofranc Deposit Rate 3 Mo. Eurodollar Deposit Rate 11 5/8 – 11 3/4% 7 7/8 – 8% The French franc is selling at a forward discount against the dollar. Using the midpoints of the quotes, the discount is 1.88% on an annualized basis. This is smaller in absolute terms than is theoretically justified on the basis of differences in interest rates: 3.68% = {[(1+11.6875 / 400) / (1+7.9375 / 400)]-1}x4x100 Consequently, an arbitrageur could profit risklessly by taking the following steps: Borrow 1,000,000 Eurodollars for 3 months at 8%.Purchase FF7,715,000 at the spot bid rate.Invest the francs for 3 months at the Eurofranc deposit rate of 11-5 / 8%.Simultaneously sell francs (buy dollars) forward at the forward offer rate of 7.7625. The amount of the forward sale should equal the total amount of franc proceeds at the deposit’s maturity, or FF7,939,217 [FF7,715,000 X (l + .11625 / 4)]. 6 The Foreign Exchange Market: Background Note and Problem Set 287-033 In three months, the arbitrageur would receive the Eurofranc deposit with interest, execute the forward contract, and obtain $1,022,765 [FF7,939,217 /7.7625]. This could be used to repay the Eurodollar loan with interest amounting to $1,020,000 [$1,000,000 X (l + .08 /4)], leaving a gain of $2,765. Assuming total transaction, brokerage, and cable cost of 0.25%, or $250 on the $1,000,000 deal, a net profit remains of $2,515. Note that this was obtained risklessly and without any equity directly committed by the arbitrageur. As many people try to exploit this opportunity in volume, interest rates and exchange rates will adjust until parity is restored and riskless profit opportunities are eliminated. Interbank Trading The vast bulk of foreign exchange transactions takes place in the interbank market where banks and foreign exchange brokers determine exchange rates. Dealers try to develop a sense for where the market is going and then buy or sell currency either for their clients or for their own portfolios. After dealer A decides what he wants to buy or sell, he calls foreign exchange dealers at other banks and “asks for the market.” He wants to know whether the dealers’ rates are competitive and doesn’t say whether he intends to buy or sell. Foreign exchange dealer B (being called now) must use her intuition to determine what caller A wants to do before offering a quote. Many techniques are used in an effort to get the best rate. For example, if the first caller wants to buy deutsche marks, he might first ask for the market in pounds to confuse the dealer and only later ask for deutsche marks. Aside from figuring out what the caller wants to do, dealer B must also devise a strategy that meets her goals. If dealer B wants to sell deutsche marks (buy dollars), she might present a bid of DM2.5235 per dollar, two points higher than other banks’, which are at 2.5233. The dealer must also quote an offer, and this should not be better than the market since she does not want to own deutsche marks. Convention holds that the caller can choose either rate and any amount within one minute after the quotes. After the minute, dealer B can change her quotes. When a difference in the fourth decimal place can represent thousands of dollars on a big transaction, good judgment and fast thinking are vital. The parties exchange confirmation papers after a deal has been arranged over the phone. Settlement occurs on the value date as the currencies are exchanged through the banks’ clearing accounts. Client rates are generally determined in the retail bank draft market, while the interbank rate is determined in the wholesale market. The largest corporate clients get rates similar to those offered to other banks. Sometimes banks cannot make markets among themselves. When a private deal cannot be arranged, foreign exchange brokers are used as intermediaries. Banks call brokers and tell them how much foreign currency they want to buy or sell and at what rate they will do the transaction. The broker then takes many requests to buy or sell and tries to find banks with complementary goals. If two banks’ exchange rate terms can be matched, a trade is made. The banks only learn of each other’s identities after a contract is settled. Following the contract’s consummation, the broker receives a fee from each bank. Banks always prefer to make their own market since the broker’s fee makes the same transaction more expensive. Other Foreign Exchange Instruments As indicated, the foreign exchange market allows individuals and corporations to transact in the spot market for immediate delivery and in the forward market for settlements in the future. 7 287-033 The Foreign Exchange Market: Background Note and Problem Set Other foreign exchange vehicles and markets are also appearing. Although they accounted for less than 1% of total foreign exchange transaction volume in 1986, their importance is likely to grow. While forward rates are quoted by commercial banks, foreign currency futures are homogeneous contracts traded in physical market places such as the International Monetary Market (IMM) in Chicago. Buyers and sellers of foreign currency futures deal through the exchanges rather than directly. Advantages of these contracts are that they are relatively small, and because of their homogeneity, are highly liquid. However, homogeneity also implies inflexibility, and there are high costs on large futures transactions. Though complicated, expensive, and relatively illiquid, foreign currency options are becoming an attractive transaction alternative. Options allow a company to hedge against foreign exchange losses, but they also provide opportunities for bold speculation in the market. Unlike futures contracts, options represent the right, but not the obligation, to buy or sell a specific amount of currency at a fixed price on or before some future date. Since the option holder can always avoid exercising the option if it is uneconomical to do so, options make possible large upside gains while limiting downside losses. Costing an average of 5-6% of the underlying contract amount, options are expensive compared to the spreads on interbank forward contracts. Though options are not for everyone, more companies are using them to make a profit and hedge risk in times of volatile exchange rate fluctuations. A common tool used to hedge foreign currency risk is a foreign currency swap. A foreign currency swap allows one party to swap principal and interest in one currency for principal and interest in another. Usually the participants borrow different currencies, exchange the receipts, and then service each other’s debt. This arrangement eliminates exchange risk for the transaction and makes future currency fluctuations irrelevant. Sometimes a domestic company is able to borrow funds at a cheaper rate than a foreign company could. Swaps provide cost savings when two companies with complementary needs and desires get together. The World Bank is a frequent participant in these swaps and arranged the first important swap with IBM in 1981. Interest rate swaps, developed in 1982, allow a company with a fixed rate asset or liability to convert the security into a floating rate obligation or vice versa. Since then, foreign currency and interest rate swaps have typically been used together. Further details concerning swaps are provided in the note, “Foreign Currency Swaps” (Harvard Business School, 286-073, Rev. 3 / 89). 8 The Foreign Exchange Market: Background Note and Problem Set 287-033 Exchange Rate Problems The mechanics of exchange rate arithmetic, though fundamentally simple, can be confusing for those not using it on a regular basis. The questions below are designed to provide practice in the more common manipulations. They are of low to moderate difficulty with the easiest problems occurring first. Exhibits 1-3, along with general background information provided in this note, are sufficient to solve the problems. Are the dealer quotes shown in Exhibit 1 direct or indirect? If DM1,000,000 were sold spot how many dollars would be received? When would settlement normally take place? Examine the cross-spot rates shown in Exhibit 2. Are there any triangular arbitrage opportunities among these currencies (assume deviations from theoretical cross rates of 5 points or less are attributable to transaction costs)? How much profit could be made on a $5 million transaction? What would be the $ /SDR bid if the SDR appreciates 15% against the dollar? What would be the SDR/$ offer rate if the SDR appreciates 15%? Which currencies are at a dollar discount and which are at a dollar premium? What are the outright forward rates for the pound? For the French franc? Using the midpoints of bid-ask spreads, what are the forward premia or discounts on an annualized percentage basis for both these currencies? A private speculator expects the yen to depreciate 7% against the dollar over the next three months. How can the speculator try to profit on these expectations through a) spot market transactions only, and b) forward market transactions only (assume no margin requirements or restrictions on transactions in credit markets)? What will be the expected dollar profit on a $1 million position in each case? What other considerations should factor into the speculator’s choice between the spot and forward markets for purposes of profiting on future movements of the yen? A U.S. corporate treasurer will receive a £2 million payment in 30 days from a British customer. The treasurer has no strong opinion about the direction or magnitude of changes in the sterling spot rate, but would like to eliminate the uncertainty surrounding such movements. Within the context of the rates shown in Exhibits 1 and 3, what options are available to the treasurer for hedging the foreign exchange risk associated with the sterling payment? What is the expected cost (expressed as an annualized percentage) of each alternative? Which alternative should the treasurer pursue? How would your answers to the above questions change if the treasurer believed very strongly that sterling would trade at $1.45? Compare the one-year forward premium or discount on the French franc to the one-year Eurodollar and Eurofranc interest rates shown in Exhibit 2. How can this situation be arbitraged? Examine the spot rate and the six-month forward rate for the British pound. Suppose a speculator anticipates that the pound’s spot rate and the six-month Eurodollar deposit rates will be unchanged from their present levels in six months time. However, at that future date, the six-month Euro-sterling deposit rates will have changed to 10.0000-10.0625% per annum. What should be the 9 287-033 The Foreign Exchange Market: Background Note and Problem Set new six-month forward rate for the pound if covered interest arbitrage opportunities are to be avoided half a year from now? How can the speculator profit from the expected change in the interest rate difference while remaining in a “square” position (i.e., offsetting foreign exchange purchase contracts with sales contracts) at all times? What will be the expected dollar profit per pound? How will this expected profit change if the spot rate six months later does not remain constant but changes to 1.5500 /10? To 1.4500 /10? What circumstances might cause the speculator to realize a loss rather than a gain? 10 The Foreign Exchange Market: Background Note and Problem Set 287-033 Exhibit 1 Spot and Forward Exchange Rates CurrencySpot1 Month3 Months6 Months12 MonthsSterlinga1.4890/0055/52160/156302/289560/523Deutsche mark2.0310/2022/1864/54128/105277/228French Franc6.6575/62573/86263/296505/5901194/1351Yen154.20/308/633/2775/62164/137SDRa1.2141/435/312/818/1124/12 aU.S. dollars per unit of currency. Exhibit 2 Cross-Spot Exchange Ratesa DM FF Yen DM–.3050/511.3169/71FF3.2779/88–4.3365/84Yen75.9232/35023.1595/618– aQuotes should be interpreted as units of the currency represented in the left-hand column per unit of currency shown in the top row. Quotes for the DM/yen and FF/yen are expressed in units per 100 yen. 11 For the exclusive use of A. Alzhrani, 2021. 287-033 -12- Exhibit 3 Eurocurrency Interest Rates Currency1 Month3 Months6 Months12 MonthsU.S. Dollar5.6875-5.81255.5000-5.62505.5000-5.62505.6250-5.7500Sterling10.0625-10.18759.8750-9.93759.6875-9.75009.6250-9.7500Deutsche mark4.4375-4.56254.3125-4.43754.3125-4.43754.3125-4.4375French Franc7.1250-7.25007.1875-7.31257.1875-7.31257.2500-7.3750Yen5.1250-5.18754.7500-4.81254.6250-4.68754.6250-4.6875SDR5.9375-6.06255.8125-5.93755.7500-5.87505.8125-5.9375 This document is authorized for use only by Ashwaq Alzhrani in Fin 550 – Case Study Chapter 6 taught by Dr. Saad Alzoba, King Saud University from Nov 2021 to May 2022.
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