International Finance: Putting Theory Into Practice

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





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6 6

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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