11．en a forward exchange rate of 5 DC/FC, a spot rate of 5.102 DC/FC, domestic interest rates of 8 percent, and foreign rates of 10 percent, which of the following statements is CORRECT based on the approximation formula? A) Arbitrage opportunities exist. B) You cannot determine if arbitrage opportunities exist with the data given. C) Arbitrage opportunities do not exist. D) Borrow local currency and lend foreign currency. The correct answer was C) If (rD - rF) is approximately equal to the forward premium, which is (Forward D/F) - Spot(D/F) / Spot(D/F), then no arbitrage opportunities exist. 0.08 − 0.10 ? (5 − 5.102)/5.102. -0.02 ≅ -0.01999. 12．ume that the domestic nominal rate of return is 4 percent and the foreign nominal rate of return is 5 percent. If the current exchange rate is 0.400 D/F, the forward rate consistent with interest rate parity is: A) 0.396. B) 0.400. C) 0.318. D) 0.330. The correct answer was A) F/S= (1 + rD)/(1 + rF) where rates are listed as DC/FC
F = (1.04/1.05)(0.400) = 0.396 13．ume the 1 year Euro to U.S. Dollar (USD) forward rate is 0.89348, the German interest rate is 3.38 percent, and the U.S. interest rate is 1.90 percent. If interest rate parity (IRP) holds, the Euro/USD spot rate is approximately: A) 1.56670. B) 0.91204. C) 0.88069. D) 0.84741. The correct answer was C) Interest rate parity is given by: Forward (DC/FC) = Spot (DC/FC) * [(1 + rdomestic) / (1 + rforeign)], or alternatively
Spot (DC/FC) = Forward (DC/FC) * [(1 + rforeign) / (1 + rdomestic)] = 0.89348 * (1.0190 / 1.0338) = 0.88069 Note that in this question, the dollar is the foreign currency and the Euro is the domestic currency. | 
发表于 2008-5-12 12:45
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