Discussion Post: Growth and Fixed Mindsets

Part I

Explain what is a spot market and why it is important in foreign currency trade

Part II

Making a lending decision to a party residing in a foreign country is a two-step decision. What are the two steps involved in such a decision?

Part III

A. What are four FX risks faced by FIs?

B. What is the spot market for FX? What is the forward market for FX? What is the position of being net long in a currency?

C. Refer to Table 13-1.

1. What was the spot exchange rate of Canadian dollars for U.S. dollars on June 15, 2015?

2. What was the six-month forward exchange rate of Japanese yen for U.S. dollars on June 15, 2015?

3. What was the three-month forward exchange rate of U.S. dollars for Swiss francs on June 15, 2015?

D. On May 15, 2015, you purchased a British pound-denominated CD by converting $1 million to pounds at a rate of 0.6435 pounds for U.S. dollars. It is now June 15, 2015. Has the U.S. dollar appreciated or depreciated in value relative to the pound?

1. Using the information, what is your gain or loss on the investment in the CD? Assume no interest has been paid on the CD.

E. On May 15, 2015, the exchange rate of U.S. dollars for Canadian dollars was 0.8095. It is now June 15, 2015. The U.S. made Chevrolet Tahoe costs $65,000 over the entire period. Has the U.S. dollar appreciated or depreciated in value relative to the pound? Is it cheaper or more costly for a Canadian citizen to buy the car (converting pounds into U.S. dollars) on June 15, 2015? What is the Canadian citizen`s C$ gain or loss on the purchase of the car if he waits to buy on June 15?

Part IV

You will write and submit a brief summary of the important concepts learned during the week. The summary will include a summary of the instructor`s weekly lecture including any videos included in the lecture.