答案和详解如下： Q5. If the forward exchange rate is 2 DC/FC and the spot rate is 1.9 DC/FC when the foreign rate of return is 12% and the domestic return is 10%, which of the following statements would be most accurate? A) Arbitrage is possible here, investors should borrow foreign, lend domestic. B) Arbitrage is possible here, investors should borrow domestic, lend foreign. C) The arbitrage possibilities cannot be determined with the data given. Correct answer is B) Question 1: Is there an arbitrage opportunity? If the result of the following formula (derived from rearranging the interest rate parity condition) is not equal to 0, there is an arbitrage opportunity. (1 + rdomestic) − [((1 + rforeign) × ForwardDC/FC)) / SpotDC/FC] = ? Here, ( 1 + 0.10 ) − [ (( 1 + 0.12 ) × 2.0DC/FC ) / 1.9DC/FC ] = ( 1.10 − 1.18 ) = -0.08, which is not equal to 0. Arbitrage opportunities exist. Question 2: Borrow Domestic (local) or Foreign? Here are some "rules" regarding where to start the arbitrage (where to borrow). These rules only work if there are no transaction costs and only if the currency is quoted in DC/FC terms.
Rule 1: If the sign on the result of question 1 is negative, borrow domestic. If the sign is positive, borrow foreign. Here, the sign is negative, so borrow domestic. Rule 2: See table below. (rd − rf) < (Forward
− Spot) / Spot | Borrow Domestic | (rd − rf) > (Forward
− Spot) / Spot | Borrow Foreign |
Here, borrow domestic. (rd − rf)
|
| (Forward
- Spot) / Spot | ( 0.10 − 0.12 ) |
| ( 2.0DC/FC − 1.9DC/FC ) / 1.9DC/FC
| -0.02 | < | 0.05 |
Summary: To take advantage of arbitrage opportunities, borrow domestic and lend foreign. Q6. Which of the following statements about foreign exchange quotes is most accurate? A) The ask price (KPW/USD) is what the bank will sell a KPW for. B) Standard interbank dealer quotes are foreign currency over the U.S. dollar. C) If the KPW goes from 2 KPW/USD to 1.75 KPW/USD the dollar has appreciated. Correct answer is B) 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. Q7. Which of the following would least likely be a participant in the forward market? A) Arbitrageurs. B) Long-term investors. C) Traders. Correct answer is B) 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. Q8. Which of the following statements related to the foreign exchange market is FALSE? A) The bid-ask spread is a function of trading volume, volatility, and term of the forward contract. B) Foreign exchange brokers provide information, anonymity, and reduced trading time. C) The settlement date in the spot market is two days after the trade. A Friday trade would be settled on Monday. Correct answer is C) In the spot market, currency trades are for immediate delivery, which is defined as two business days after the transaction. Q9. Immediate delivery is assumed in which market? A) Spot market. B) Currency swap market. C) Forward market. Correct answer is A) Forward markets are contracts for future delivery. Currency swaps involve a combination of spot and forward transactions. Q10. 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 least accurate? A) Capital will flow into Great Britain. B) If you start by borrowing $1,000, your arbitrage profits will be $128. C) If you start by borrowing 1,000 GBP, your arbitrage profits will be 116 GBP. Correct answer is C) 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. | 
发表于 2009-1-13 11:47
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