1.Given the following information: §
The U.S. interest rate is 6%. §
The GBP/USD spot rate is 2.2. §
The GBP forward rate is 2 GBP/USD §
The domestic Great Britain interest rate is 8%. Which of the following statements is FALSE? A) Capital will flow into Great Britain. B) If you start by borrowing 1,000 GBP, your arbitrage profits will be 116 GBP. C) If you start by borrowing $1,000, your arbitrage profits will be $128. D) To arbitrage borrow Dollars at 6%, convert them to GBPs and lend the GBPs out at 8%. The correct answer was B) If rD– rF < (forward–spot)/spot then borrow domestic and lend foreign.
If rD– rF > (forward–spot)/spot then borrow foreign and lend domestic. rD– rF = 0.08 - 0.06 = 0.02 > –0.09 = [(2 – 2.2)/2.2] so borrow USD, lend GBP. Borrow $1,000 pay 6% (to pay $1,060); convert the $1,000 to 2,200 GBP
Lend out the GBP 2,200 at 8% (to receive GBP 2,376)
Forward contract to convert the GBP 2,376 to dollars at 2 GBP/$ (to receive $1,188)
At end receive GBP 2,376, convert $1,188, pay off loan of $1,060, your profit is $128. 2.Immediate delivery is assumed in which market? A) Forward market. B) Currency swap market. C) Spot market. D) Interest rate swap market. The correct answer was C) Forward markets are contracts for future delivery. Currency swaps involve a combination of spot and forward transactions. 3.Which of the following statements related to the foreign exchange market is FALSE? A) The settlement date in the spot market is two days after the trade. A Friday trade would be settled on Monday. B) Foreign exchange brokers provide information, anonymity, and reduced trading time. C) The bid-ask spread is a function of trading volume, volatility, and term of the forward contract. D) The foreign exchange market is the largest financial market in the world. The correct answer was A) In the spot market, currency trades are for immediate delivery, which is defined as two business days after the transaction. 4.Which of the following would least likely be a participant in the forward market? A) Arbitrageurs. B) Traders. C) Speculators. D) Long-term investors. The correct answer was D) Forward contracts are for 30, 90, 180, and 360-day periods and would, therefore, be considered short-term investment choices. Other participants in the forward market are hedgers who use forward contracts to protect the home currency value of foreign currency denominated assets on their balance sheets over the life of the contracts involved. 5.Which of the following statements about foreign exchange quotes is most accurate? A) Standard interbank dealer quotes are foreign currency over the U.S. dollar. B) If the KPW goes from 2 KPW/USD to 1.75 KPW/USD the dollar has appreciated. C) The ask price (KPW/USD) is what the bank will sell a KPW for. D) The bid price (KPW/USD) is what the bank will buy a KPW for. The correct answer was A) The asking price is what the bank will sell a dollar for. The bid price is what the bank will buy a dollar for. In regular interbank transactions the dollar is always in the denominator (European terms), the dollar depreciated while the KPW appreciated. | 
发表于 2008-5-12 12:10
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