Type 1: CROSS EXCHANGE RATE
1.1 Using commodity currency to count cross exchange
rate
1.2 Using term currency to count cross exchange rate
1.3 Using a currency working as both a commodity
currency and a term currency to count cross
exchange rate
1.1 Using commodity currency to count cross
exchange rate
Inverse exchange rate
X/Y = a-b => Y/X = ?
-
SbidX/Y=a means that a bank wants to buy 1 unit X so they need to sell 1 unit Y.
Therefore, the bank sells 1 unit Y so they can buy 1/a unit X => SaskY/X = 1/a
-
SaskX/Y=b means that when a bank sells 1 unit X, they can buy b unit Y. Therefore,
the bank wants to buy 1 unit Y so they have to sell 1/b unit X => SbidY/X = 1/b
So if X/Y = a-b, the inverse exchange rate will be Y/X which is equal to 1/b-1/a
1.1 Using commodity currency to count cross
exchange rate
In the market:
X/Y = a/b
X/Z = c/d
Count the cross exchange rate: Y/Z và Z/Y
Using commodity currency to count cross
exchange rate
In the market: - X/Y = a/b
- X/Z = c/d
Count: - Y/Z
- Z/Y
Sbid Y /Z = SbidY /X * Sbid X/Z =
1
c
*Sbid X/Z =
Sask X/Y
b
1
d
Sask Y /Z = SaskY/ /X* Sask X/Z=
*SaskX/Z =
Sbid X/Y
a
c
a
Y/Z =
b
d
a
=> Z / Y =
d
b
c
1.1Using commodity currency to count cross
exchange rate
■
Example 1:
In the market
USD/CHF = 1,1807/74
USD/HKD = 7,7515/85
Count CHF/HKD; HKD/CHF
1.1 Using commodity currency to count cross
exchange rate
Sbid CHF/HKD = Sbid CHF/USD* Sbid USD/HKD
= Sbid CHF/USD*Sbid USD/HKD
= (1/1,1874)*7,7515=6,5281
Sask CHF/HKD = Sask CHF/USD*Sask USD/HKD
= (1/1,1807)*7,7585= 6,5711
CHF/HKD = 6,5281-6,5711
HKD/CHF = 1/6,5711-1/6,5281 = 0,1521-0,1531
Practice
In the market: CHF/USD = 1,1807/74 ; HKD/USD = 7,7515/85
Sbid CHF / HKD = Sbid CHF / USD * Sbid USD / HKD
1
7 , 7515
=
=
= 6 , 5281
* Sbid USD / HKD
Sask USD / CHF
1 ,1874
Sask CHF/ HKD = Sask CHF/ USD * Sask USD / HKD
1
7 , 7585
=
=
* Sask USD/ HKD
Sbid USD/ CHF
1 ,1807
=
>
=
>
CHF / HKD
=
HKD / CHF
=
6 , 5281 / 6 , 571
1
1
6 , 571
1
1
6 , 5281
= 6 , 571
1
= 0 ,1521 / 0 ,1531
1.2 Using term currency to count cross
exchange rate
In the market:
X/Z = a/b
Y/Z = c/d
Count the cross exchange rate: X/Y; Y/X
1.2 Using term currency to count cross exchange
rate
X/Z = a/b
Y/Z = c/d
Sbid X /Y = Sbid X /Z * Sbid Z/Y = Sbid X /Z *
Sask X/Y = Sask X /Z * SaskZ/Y = SaskX /Z *
X /Y =
a
d
b
c
=> Y / X =
c
b
d
a
1
a
=
Sask Y/Z
d
1
b
=
Sbid Y/Z
c
Practice
In the market GBP/USD = 2,0345/15; EUR/USD= 1,4052/40
Sbid GBP / EUR = Sbid GBP / USD * Sbid USD / EUR
2 , 0345
1
= Sbid GBP / USD *
=
Sask EUR/ USD
1 , 4140
Sask GBP / EUR = Sask GBP/ USD
*
1
= Sask GBP/ USD *
Sbid EUR / USD
=> GBP / USD =
=> USD / GBP
1 , 4388 / 1 , 4528
1
= 1 , 4528
1
1 , 4388
Sask USD / EUR
2 , 0415
=
1 , 4052
= 1 , 4388
= 1 , 4528
= 0 , 6883 / 0 , 6950
1.3 Using a currency working as both a
commodity currency and a term currency to
count cross exchange rate
In the market
X/Y = a/b
Y/Z = c/d
Count the cross exchange rate X/Z; Z/X
1.3 Using a currency working as both a
commodity currency and a term currency to
count cross exchange rate
X/Y = a/b
Y/Z = c/d
Sbid X/ Z = Sbid X/ Y * Sbid Y / Z = a * c
SaskX/Z = SaskX /Y * SaskY/Z = b * d
1
X / Z = a / bd = Z / X = bd 1
>
c
a
c
1.3 Using a currency working as both a
commodity currency and a term currency to
count cross exchange rate
■
Example 3:
In the market:
EUR/USD = 1,4052/40
USD/HKD = 7,7515/85
Count the cross exchange rate EUR/HKD;
HKD/EUR
Practice:
Cho biết: EUR/USD = 1,4052/40; USD/HKD = 7,7515/85
Sbid EUR / HKD =
= 1 , 4052 * 7 , 7515
Sbid EUR / USD * Sbid USD / HKD
= 10 , 8924
Sask EUR/ HKD = Sask EUR / USD
= 1 , 4140 * 7 , 7585 = 10 , 9705
=
>
=
>
EUR / HKD
HKD / EUR
* Sask USD/ HKD
= 10 , 8924 / 10 , 9705
1
= 10 , 9705
= 0 , 091
1
1
10 , 8924
/ 18
Homework: Count the cross exchange rate
■
In the market:
GBP/USD = 2,0345/15
USD/SEK = 6,4205/6,5678
USD/NOK = 5,3833/5,4889
USD/DKK = 5,2367/10
EUR/USD = 1,4052/40
USD/CHF = 1,1807/74
USD/HKD = 7,7515/85
■
Count the cross exchange rate:
GBP/NOK; GBP/EUR; EUR/HKD; HKD/SEK; HKD/CHF
Type 2: ARBITRAGES
Introduction about Arbitrages
■ Finding opportunities and doing arbitrages
■ Applying arbitrages in payment: How does value
in a company’s account change after doing
transactions?
■
2- Arbitrages
2.1 Finding opportunities and doing arbitrages
2.1.1 Simple arbitrages
2.1.2 Complicated arbitrages
2- Arbitrages
2.1.1 Finding opportunities and doing simple arbitrages
Step 1: : quoting the same kind of exchange rate in two
markets
Step 2: Determining the way arbitrageur could do
transaction to gain profit
if Sask (market X)< Sbid ( market Y), arbitrageur could
gain profit from Acbit.
2- Arbitrages
2.1.1 Finding opportunities and doing simple arbitrages(continuous)
- Example 1:
■
Market A: GBP/USD = 2.0315/55
GBP/EUR = 1.4388/28
■
Market B: USD/GBP = 0.4870/10
USD/EUR = 0.7072/16
Find opportunity to gain profit from doing arbitrage: GBP/USD
2- Arbitrages
2.1.1 Finding opportunities and doing simple arbitrages - Answer:
Market A:
-
GBP / USD = 2,0315 / 55
1
GBP / USD = 0, 4910
Market B:
-
Sask GBP / USD (A
1
0, 4870
= 2,0366 / 2,0533
) = 2,0355 < Sbid GBP/ USD (B
= 2,0366) :=> Gain profit
2- Arbitrages
2.1.1 Complicated arbitrages
■
With an amount of capital in a certain currency, based on
information about exchange rate in more than two markets,
arbitrageur would sell and buy different currencies listed on
markets to gain profit. That is profit from arbitrage.
■
Step 1: Choosing the way of arbitrage: Finding opportunity
■
Step 2: Buying and selling different currencies to gain profit from
arbitrage
2- Arbitrages
2.1.1 Complicated Arbitrages - example:
■
Market 1: EUR/USD = 1,4052/40
■
Market 2: USD/CHF = 1,1807/74
■
Market 3: EUR/CHF = 1,6375/49
Mr X has an amount of 150.000 EUR. Do Arbitrage and evaluate
the profit from arbitrage with the assumption that there is no fees.
2- Arbitrages
2.1.1 Complicated Arbitrages – Answer:
■
Way 1:
Sell EUR/USD (market 1) -> Sell USD/CHF (market 2) ->Sell
CHF/EUR (market 3)
■
Way 2:
Sell EUR/CHF (market 1) -> Sell CHF/USD (market 2) ->Sell
USD/EUR (market 3)
2- Arbitrages
2.1.1 Complicated Arbitrages – Answer:
Way 1
Sell EUR/USD with Sbid = 1,4052
=>the amount of USD bought is: 150.000 * 1,4052 = 210.780 USD
■
Sell USD/CHF with Sbid = 1,1807
=>The amount of CHF bought is: 210.780 * 1,1807 = 248.867,946 CHF
■
Sell CHF/EUR with Sbid CHF/EUR = 1 /1,6449 = 0,6079
=> The amount of EUR bought is 248.867,946 * 0.6079 = 151.286,8244 EUR
■
■
The profit from Arbitrages is:
151.286,8244 – 150.000 = 1.286,8244 (EUR)
2- Arbitrages
2.1.1 Complicated Arbitrages – Answer:
Way 2
Sell EUR/CHF (market 3) with Sbid = 1,6375
=>The amount of CHF is bought:150.000 * 1,6375 = 245.625 CHF
■
Sell CHF/USD with Sbid= CHF/USD = 1/1,1874 = 0,8421
=>The amount of USD is bought: 245.625 * 0,8422 = 206.859,525 USD
■
Sell USD/EUR with Sbid USD/EUR = 1/Db (EUR/USD) = 1 /1,4140 = 0,7072
=> The amount of EUR is bought 206.859,525 * 0,7072 = 146.293,865 EUR
■
■
Profit from Arbitrages is:
146.293,865 – 150.000= - 3706,135 (EUR) => loss from Arbitrage=> do not do arbitrage
Type 3:FORWARDS
3.1 FORWARD EXCHANGE RATE – quotation
Forward point:
Sforward = Sspot ± forward point
- POINT ask≥POINT bid:
Sforward = Sspot + forward point
- POINT ask<POINT bid:
Sforward = Sspot – forward point
Type 3:FORWARDS
3.1 Forward exchange rate
Sfask
Sfbid
= Sask +
= Sbid +
Sask * ( T 2 ask− T 1 bid) * N
36 . 000 + T 1 bid*N
Sbid * ( T 2 bid− T 1ask)* N
36 . 000 + T 1 ask*N
Sbid, Sask: spot exchange rate
N: the number of days for forward transaction
T2bid: the borrowing interest of currency 2
T1ask: the lending interest of currency 1
Type 3:FORWARDS
3.2 Forwards - Example:
In the market:
Sspot: USD/CHF = 1,5642/42
S forward-3 months
USD/CHF = 1,5856/87
Interest rate forward 3 months(yearly qouted).
USD:41/8 – 41/2
CHF: 7 – 71/2
fees: ±1/8 (0.125%)
Mr X has the amount of 1.500.000 CHF, how to do forward transaction?
Type 3:FORWARDS
3.2 forward – answer:
■
Step 1: Buy USD/CHF with Sask=1,5742
=>the amount of USD bought is: 1.500.000/1,5742=952.864,9473
■
Step 2: have USD deposit in 3 months with the interest ratet:
41/8 - 1/8=4 (%/year)
=>The total amount of USD ( interest included) is:
952.864,9473*(1+90*4/36000)=962.393,5968
Type 3:FORWARDS
3.2 forward – answer:
■
Step 3: Sign the forward contract to sell USD/CHF 3 months with Sforward bid
=1,5856
■
After 3 months, the amount of CHF received is:
962.393,5968*1,5856=1.525.971,287 CHF
■
■
If have CHF deposit in a bank with the interest rate (7-0.125 = 6,875), the
amount of CHF received after 3 months will be:
1.500.000*(1+6,875*90/36.000)=1.525.781,2500
Profit: 1.525.971,287 – 1.525.781,2500 = 190,0371 CHF
Type 4: OPTIONS
4.1 Introduction about options
4.2 Buying/selling buying options
4.3 Buying/selling selling options
4.4 Practice
Buying/selling buying options- Example
■
A Canadian importing company has to pay 1 million USD in 1 month. The company
decided to buy buying option (call option) USD/CAD 1 month with some information
in the contract below:
- Exercise price 1,2345 CAD= strike
- Option fees
0,02 CAD= premium
Take an assumption: after 1 month, the spot exchange rate would be in 3 cases:
1. USD/CAD = 1,2821
2. USD/CAD = 1,2345
3. USD/CAD = 1,1904
In which case would the company exercise the contract? And how much CAD would
be sold in each case?
Buying/selling buying options- Answer
Option fees = 1.000.000*0,02=20.000 CAD
■
If the company exercises the contract, the amount of CAD paid (fees included) will be :
1.000.000*1,2345+20.000=1.254.500 CAD
case1: USD/CAD=1,2821, the company does not exercise the contract, the amount of CAD pa
■
(fees included) is:
1.000.000*1,2821+20.000=1.302.100 CAD>1.254.500
=>the company will exercise the contract, the amount of CAD paid will be :1.254.500
Case2: USD/CAD = 1,2345= exercise price, so the company could choose either to exercise th
■
contract or not and the amount of CAD paid will be 1.254.500 CAD
TH3: USD/CAD=1,1904, the amount of CAD paid (fees included) will be :
■
1.000.000*1,1904+20.000=1.210.400 CAD <1.254.500
=> the company will not exercise the contract, the amount of CAD paid will be 1.210.400
Buying/selling selling options- Example
■
An USA exporting company has to receive an amount of 100.000 GBP in 1 month.
The company signs an selling contract GBP/USD in 1 month with the information
below:
- Exercise price1,60 USD
- Option fees 0,04 USD
Take an assumption: after 1 month, the spot exchange rate would be in 3 cases:
1. GBP/USD = 1,58
2. GBP/USD = 1,60
3. GBP/USD = 1,64
In which case would the company exercise the contract? And how much USD would
be bought in each case?
Buying/selling selling options- Answers
Option fees = 100.000*0,04=4.000 USD
■
If the company exercises the contract, the amount of USD bought (fees included) will be:
■
100.000*1,60 - 4.000=156.000 USD
Case1: GBP/USD=1,58,when the company does not exercises the contract, the amount of
USD bought (fees included) will be 100.000*1,58 - 4.000=154.000 USD<156.000
=> In this case, the company exercises the contract, the amount of USD bought (fees
included) will be 156.000
TH2: GBP/USD=1,60= exercise price, so the company could choose either to exercise the
■
contract or not and the amount of USD bought will be 156.000USD
TH3: GBP/USD=1,64, the amount of USD bought (fees included) will be 100.000*1,64 -
■
4.000=160.000 USD>156.000
=>In this case the company will not exercise the contract, the amount of USD bought will be
Type 5: SWAP
- Swap between 2 banks
- Swap between a bank and a customer
5. Swap
5.1 Swap between two banks
5.1.1 A bank has an excessive amount of foreign currency and
need a fixed amount of an another foreign currency
5.1.2 A bank has a fixed excessive amount of foreign currency
and need an amount of an another foreign currency
5.1. Swap between 2 banks
Sbid +Sask
Spot buying : Saverage=
2
Saverage (T2bid- T1ask) N
Forward selling: Sswap = Saverage +
+ T1ask * N
36000
Sbid+ Sask
Spot selling: = Saverage =
2
Mua kỳ hạn:
Sswap
Saverage(T2ask- T1bid) N
= Saverage +
+ T1bid * N
36000
5.1. Swap between 2 banks
5.1.1 A bank needs a fixed amount of foreign currency - Example:
■
Bank A needs 1.000.000 Euro in the next 90 days while they have an
excessive amount of USD. How to do swap for bank A?
■
Information in the market:
EUR/USD = 1,1235/75
interest rate for 3 months:
USD: 4,25 – 4,5 (%)
EUR: 5,125 - 5,25 (%)
5.1. Swap between 2 banks
5.1.1 A bank needs a fixed amount of foreign currency - Answer:
Step 1: At J+2, Bank A receives 1.000.000 Euro from their partner and sell
USD at the present with S average EUR/USD. The amount of USD sold is that:
1.000.000 * 1,1255 = 1.125.500 USD
Step 2: At J+2+90, Bank A pays 1.000.000 EUR for their partner and gains
backs an amount of USD with Sswap
5.1. Swap between 2 banks
5.1.1 A bank needs a fixed amount of foreign currency - Answer:
Sswap EUR/USD = Saverage + Swap fees
Saverage(T2bid- T1ask) *90
Sswap EUR/USD= Saverage +
36000 + T1ask* 90
1 ,1255 ( 4 , 25 - 5 , 25 ) 90
= 1 ,1255 +
= 1 ,1234
36000 + 5 , 25 * 90
The amount of USD bank A gains back is : 1.000.000*1,1234 = 1.123.400
(USD)
5.1. Swap between 2 banks
5.1.2 A bank has a fixed excessive amount of foreign currency. Example:
■
Bank A has an excessive amount of 1.000.000 Euro in the next 90 days while
this bank needs to use USD. How to do swap for this bank?
■
The information in the market
EUR/USD = 1,1235/75
Interest rate for 3 months:
USD: 4,25 – 4,5 (%)
EUR: 5,125 - 5,25 (%)
5.1. Swap between 2 banks
5.1.2 A bank has a fixed excessive amount of foreign currency. Answer:
- Step 1: At J+2, bank A sell 1.000.000 EUR for their partner with Saverage:
1,1235 + 1,1275
= 1,1255
2
The amount of USD bank A receives:
1.000.000*1,1255 = 1.125.500 USD
- Step 2: At J+2+90, Bank A receives 1.000.000 EUR from their partner and
pays USD with Sswap=1,1237=> the amount of USD, bank A has to pay:
1.000.000*1,1237= 1. 123.700 USD
5.2. Swap between a bank and a customer
5.2 Swap between a bank and a customer
5.2.1 A customer has an excessive amount of foreign
currency and need a fixed amount of an another
foreign currency
5.2.2 A customer has a fixed excessive amount of
foreign currency and need an amount of an another
foreign currency
5.2. Swap between a bank and a customer
Spot buying: Sask
Forward selling:
Sswap = Sask +
Sbid (T2bid - T1ask) N
36000 + T1ask* N
Spot selling: Sbid
Forward buying:Sswap = Sbid +
Sask (T2ask - T1bid) N
36000 + T1bid* N
5.2. Swap between a bank and a customer
5.2.1A customer needs a fixed amount of foreign currency - Example:
Company X needs 1.000.000 GBP in the next 60 days while they have an
excessive amount of USD. How to do swap for company X?
■
The information in the market:
GBP/USD = 2,0345/15
Interest rate for 2 months
GBP: 9 – 91/8 ; USD: 4 – 41/4
5.2. Swap between a bank and a customer
5.2.1. A customer needs a fixed amount of foreign currency - Answer:
- Step 1: Tại J+2, this company receives 1.000.000 GBP from their partner and sell
USD at the present with Sask GBP/USD = 2,0415

The amount of USD sold is: 1.000.000 * 2,0415 = 2.041.500
- Step 2: At J+2+60, this company pays 1.000.000 GBP for their partner and gains
back USD with Dswap
5.2. Swap between a bank and a customer
5.2.1. A customer needs a fixed amount of foreign currency - Answer:
Sbid = 2,0345; Sask = 2,0415
T1ask(GBP) = 9,125 * 360 / 365 = 9
T2bid(USD) = 4
2,0345 ( 4 - 9)60
Dswap = 2,0415 +
= 2,0247
36000 + 9 * 60
The number of USD the company receives is: 1.000.000 * 2,0247 = 2.024.700 (USD)
5.2. Swap between a bank and a customer
5.2.2.A customer has a fixed excessive amount of
foreign currency
Company X has an excessive amount of 1.000.000 GBP in the
next 60 days and needs to use USD. Do Swap GBP/USD for
company X.
5.2. Swap between a bank and a customer
5.2.2.A customer has a fixed excessive amount of foreign currency: Answer
- Step 1: At J+2, the company sell 1.000.000 GBP for the partner to receive USD with
Sbid GBP/USD=2,0345
the amount of USD received is: 1.000.000 * 2,0345 = 2.034.500
- Step 2: At J+2+60 the company receive 1.000.000 GBP from the partner and pay
USD back with Sswap:
5.2. Swap between a bank and a customer
5.2.2.A customer has a fixed excessive amount of foreign currency: Answer
Sbid = 2,0345; Sask = 2,0415
T1bid(GBP) = 9 * 360 / 365 = 8,8767
T2ask (USD) = 4,25
2,0415 (4,25 - 8,8767 )60
Dswap = 2,0345 +
= 2,0189
36000 + 8,8767 * 60
The amount of USD, the company has to pay: 1.000.000 * 2,0189 = 2.018.900
USD
5. Swap – Practice
■
Ex1:In Germany, Bank X needs 800.000 SEK in the next 90 days and has an
excessive amount of CAD. Do Swap for bank X.
■
Ex2: In England, Bank Y needs EUR in the next 90 days and has an amount
of 500.000 CHF. Do Swap for bank Y.
■
Ex3: In France, company M has an excessive amount of 850.000 AUD, they
need to use NOK in the next 90 days. Do Swap for company M.
■
Ex4: In England, company N needs to use 300.000 EUR in the next 90 days,
they have an amount of GBP. Do Swap for company N.
5. Swap – Practice
■
The information in the market:
GBP/USD=1,7395/15
USD/NOK=6,7370/25
EUR/USD=1,1225/45
USD/AUD=1,3437/67
USD/SEK=7,8310/97
USD/CHF=1,5642/42
USD/CAD=1,1255/95
■
Interest rate for 3 months (%/year)
GBP:91/16-91/8
AUD:3-31/2
NOK:61/4-61/2
SEK:81/8-81/4
71/2
CAD:6 – 61/2
EUR:51/4-51/2
CHF:7 –