As a foreign exchange trader for JPMorgan Chase, you call a trader at UBS to get
quotes for the British pound for the spot, 30-day, 60-day, 90-day and 180-day forward
rates. Your UBS counterpart states, "We trade sterling at $1.2715-20,(45)/(40),(82)/(79),
(125)/(115),(150)/(135)." Is the dollar at a premium or a discount at these maturities? What
cash flows would you pay and receive if you do a forward foreign exchange swap in
which you swap into £5,000,000 at the 60 -day rate and out of £5,000,000 at the 180 -day
rate? Do you get back more or less dollars? Why? What must be the relationship
between dollar interest rates and pound sterling interest rates?
As a foreign exchange trader for JPMorgan Chase, you call a trader at UBS to get quotes for the British pound for the spot, 30-day, 60-day, 90-day and 180-day forward rates. Your UBS counterpart states, "We trade sterling at $1.2715-20, 45/40, 82/79, 125/115, 150/135. Is the dollar at a premium or a discount at these maturities? What cash flows would you pay and receive if you do a forward foreign exchange swap in which you swap into &5,000,000 at the 60-day rate and out of &5,000,000 at the 180-day rate? Do you get back more or less dollars? Why? What must be the relationship between dollar interest rates and pound sterling interest rates?