you are a bank fx dealer looking at the reuters screen you see the following rates 600435

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You are a bank FX dealer. You look at your Reuters screen and see the following rates quoted:

EUR/USD Don't use plagiarized sources. Get Your Custom Essay on you are a bank fx dealer looking at the reuters screen you see the following rates 600435 Get an essay WRITTEN FOR YOU, Plagiarism free, and by an EXPERT! Just from $10/Page Order Essay	spot:	1.2012	/	22
USD/JPY	spot:	127.30	/	35
USD/JPY	6-month swap:	266	/	260
USD	6-month interest rates:	5.25	/	5.375%
JPY	6-month interest rates:	1.00	/	1.25%

The 6-month value date is 182 days after spot value date.

Your customer needs to convert his JPY receivables into USD in six months’ time. What two-way forward outright price would you quote for this? Is the JPY at a discount or a premium to the USD? On which side of the price would you deal?
He is not necessarily in a hurry to do this transaction, because he thinks that the spot exchange rate will get better for him. He expects the EUR/USD to move to 1.1900 over the next two days, but believes that the JPY is likely to move from its present level of 153 against the EUR to 151.

He also believes that USD interest rates will fall tomorrow by 0.5% but that JPY rates will probably rise 1.0% at the same time.

Should he sell the JPY forward now, or wait two days?

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