194 CHAPTER 5. USING FORWARDS FOR INTERNATIONAL FINANCIAL MANAGEMENT
Figure 5.7:Spot/Forward/Money Market Diagram: Ms Takeshita’s data
HCT FCT
HCt FCt
1
1. 0105 1.0095
hcmoney market
1
1. 0205 1.0195
fcmoney market
98.88
1 / 99. 16
forward market
99.95
1 / 100. 05
spot market
?
6 6
?
Table 5.1:Ms Takeshita’s calculations
problem; start, end alternatives & output
financefc-denominatedA/R * viaFCt: 1. 02051 ×99.95 = 97.942185♥♥
(FCTtoHCt) * viaHCT: 98.88× 1. 01051 = 97.852548
hcdeposit * direct: 1.009500♥♥
(HCttoHCT) * synthetic: 1001. 05 ×1.0195× 98 .88 = 1.0075778
invest infc * viaFCt: 1001. 05 ×1.0195 = 0.010189905♥♥
(HCttoFCT) * viaHCT: 1.0095× 991. 16 = 0.01018051
parkfc * direct: 1.0195♥♥
FCttoFCT * synthetic: 99.95 x 1.0095 x 991. 16 = 1.01754260
way to move spot Yen into future Dollars is via the forward market, and the output
perjpyinput is 0.010189905. We easily calculate that the required investment by