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标题: Reading 18: Currency Exchange Rates-LOS e习题精选 [打印本页]
作者: 土豆妮    时间: 2010-4-13 15:54     标题: [2010]Session 4-Reading 18: Currency Exchange Rates-LOS e习题精选

Session 4: Economics: Economics for Valuation
Reading 18: Currency Exchange Rates

LOS e: Distinguish between the spot and forward markets for foreign exchange.

 

 

 

On a recent vacation, John Dorn exchanged $100 U.S. for euros. Dorn did not spend any of the euros, so at the end of the trip, he exchanged the euros back for dollars. If the bid-ask quote for euros during this period was 1.04-1.13, how many dollars did Dorn have at the end of the trip?

A)

$92.

B)

$95.

C)

$108.

作者: 土豆妮    时间: 2010-4-13 15:54

On a recent vacation, John Dorn exchanged $100 U.S. for euros. Dorn did not spend any of the euros, so at the end of the trip, he exchanged the euros back for dollars. If the bid-ask quote for euros during this period was 1.04-1.13, how many dollars did Dorn have at the end of the trip?

A)

$92.

B)

$95.

C)

$108.



$100(bid 1.04 /USD) = $104

$104 / (ask 1.13/USD) = $92

作者: 土豆妮    时间: 2010-4-13 15:54

A Hong Kong company needs to pay one of its suppliers 8,000,000 Indian rupees 90 days from now. The company is worried that rupees will appreciate during this time and decides to partially hedge its exchange rate risk by entering a contract to purchase half of the rupees 90 days into the future for a price of 5.9364 INR/HKD. The current exchange rate is 5.7921 INR/HKD.

90 days later, the exchange rate is 5.8764 INR/HKD. What is the gain/loss of entering this forward contract?

A)
 ?6,880 HKD.
B)
 6,880 HKD.
C)
 9,906 HKD.

作者: 土豆妮    时间: 2010-4-13 15:54

A Hong Kong company needs to pay one of its suppliers 8,000,000 Indian rupees 90 days from now. The company is worried that rupees will appreciate during this time and decides to partially hedge its exchange rate risk by entering a contract to purchase half of the rupees 90 days into the future for a price of 5.9364 INR/HKD. The current exchange rate is 5.7921 INR/HKD.

90 days later, the exchange rate is 5.8764 INR/HKD. What is the gain/loss of entering this forward contract?

A)
 ?6,880 HKD.
B)
 6,880 HKD.
C)
 9,906 HKD.


By entering into the forward contract, the company gained [(4,000,000 / 5.9364) ? (4,000,000 / 5.8764)] = 6,880 HKD.

作者: 土豆妮    时间: 2010-4-13 15:54

Which of the following statements about exchange rates is most accurate?

A)
 Given the bid-ask spread between pesos and dollars is 6.0000-6.0025, and the bid-ask spread between pounds and dollars is 2.0000-2.0015, then the bid/ask spread between pesos and pounds is 2.875-2.934.
B)
 The bid-ask spread is a function of breadth, depth, and volatility of the market for a currency.
C)
 A bid of 8.000 pesos/dollar, means the bank will sell you a dollar for 8 pesos.

作者: 土豆妮    时间: 2010-4-13 15:55

Which of the following statements about exchange rates is most accurate?

A)
 Given the bid-ask spread between pesos and dollars is 6.0000-6.0025, and the bid-ask spread between pounds and dollars is 2.0000-2.0015, then the bid/ask spread between pesos and pounds is 2.875-2.934.
B)
 The bid-ask spread is a function of breadth, depth, and volatility of the market for a currency.
C)
 A bid of 8.000 pesos/dollar, means the bank will sell you a dollar for 8 pesos.


When the bank bids they are buying and you are selling. Spot exchange rates, forward exchange rates, and interest rates are closely linked. The bid-ask spread between pesos and pounds is 6.0000/2.0015 = 2.9978 and 6.0025/2.0000 = 3.0013.

作者: 土豆妮    时间: 2010-4-13 15:55

Which of the following statements about exchange rates is FALSE?

A)

In a perfect world, triangular currency arbitrage keeps exchange rates in equilibrium.

B)

The gain or loss on a forward contract is directly related to the current spot rate.

C)

Arbitrage cannot work effectively in the presence of government regulations hampering the flow of funds across borders.

作者: 土豆妮    时间: 2010-4-13 15:55

Which of the following statements about exchange rates is FALSE?

A)

In a perfect world, triangular currency arbitrage keeps exchange rates in equilibrium.

B)

The gain or loss on a forward contract is directly related to the current spot rate.

C)

Arbitrage cannot work effectively in the presence of government regulations hampering the flow of funds across borders.



The gain or loss on a forward contract is unrelated to the spot rate. Gains or losses are measured relative to the forward contract rate, not the spot rate. Forward contracts call for delivery of a specified amount of a currency quoted against the dollar on a specific future date.

作者: 土豆妮    时间: 2010-4-13 15:55

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 domestic, lend foreign.
B)
 Arbitrage is possible here, investors should borrow foreign, lend domestic.
C)
 The arbitrage possibilities cannot be determined with the data given.

作者: 土豆妮    时间: 2010-4-13 15:56

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 domestic, lend foreign.
B)
 Arbitrage is possible here, investors should borrow foreign, lend domestic.
C)
 The arbitrage possibilities cannot be determined with the data given.


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.
作者: 土豆妮    时间: 2010-4-13 15:56

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)
 The ask price (KPW/USD) is what the bank will sell a KPW for.
C)
 If the KPW goes from 2 KPW/USD to 1.75 KPW/USD the dollar has appreciated.

作者: 土豆妮    时间: 2010-4-13 15:56

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)
 The ask price (KPW/USD) is what the bank will sell a KPW for.
C)
 If the KPW goes from 2 KPW/USD to 1.75 KPW/USD the dollar has appreciated.


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.

作者: 土豆妮    时间: 2010-4-13 15:56

Which of the following would least likely be a participant in the forward market?

A)

Long-term investors.

B)

Arbitrageurs.

C)

Traders.

作者: 土豆妮    时间: 2010-4-13 15:57

Which of the following would least likely be a participant in the forward market?

A)

Long-term investors.

B)

Arbitrageurs.

C)

Traders.



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.

作者: 土豆妮    时间: 2010-4-13 15:57

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)
 The settlement date in the spot market is two days after the trade. A Friday trade would be settled on Monday.
C)
 Foreign exchange brokers provide information, anonymity, and reduced trading time.

作者: 土豆妮    时间: 2010-4-13 15:57

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)
 The settlement date in the spot market is two days after the trade. A Friday trade would be settled on Monday.
C)
 Foreign exchange brokers provide information, anonymity, and reduced trading time.


In the spot market, currency trades are for immediate delivery, which is defined as two business days after the transaction.

作者: 土豆妮    时间: 2010-4-13 15:57

Immediate delivery is assumed in which market?

A)

Currency swap market.

B)

Forward market.

C)

Spot market.


作者: 土豆妮    时间: 2010-4-13 15:57

Immediate delivery is assumed in which market?

A)

Currency swap market.

B)

Forward market.

C)

Spot market.



Forward markets are contracts for future delivery. Currency swaps involve a combination of spot and forward transactions.

作者: 土豆妮    时间: 2010-4-13 15:58

Given the following information:

Which of the following statements is correct?

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.

作者: 土豆妮    时间: 2010-4-13 15:58

Given the following information:

Which of the following statements is correct?

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.


We know that arbitrage is possible because 2.2 × (1.08/1.06) = 2.2415 > 2.0. This means that the pound is overvalued in the forward market (it takes too few of them to buy one dollar), and should be sold forward. This means that we need to buy pounds today so that we have them to sell forward.

Step 1: Borrow $1,000 at 6% (repay $1,060 in one year), convert the $1,000 at the spot rate to 2,200 GBP
Step 2: Lend out the GBP 2,200 at 8% (will receive GBP 2,376 in one year)
Step 3: Sell the pounds forward at the quoted forward rate, 2,376/2 = $1,188
Step 4: Repay loan, $1,188 ? $1,060 = $128 profit

作者: luqian55    时间: 2010-5-31 06:07

thanks
作者: annyyu    时间: 2011-1-7 04:28

re



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