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strayer university ITB400 QUIZ 3

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Question;?;As of today, the spot exchange rate is ?1.00 =;$1.25 and the rates of inflation expected to prevail for the next year in the;U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that;should prevail?;Answer;?;Question 2;3 out of 3 points;As of today, the spot exchange rate is ?1.00 =;$1.60 and the rates of inflation expected to prevail for the next year in the;U.S. is 2% and 3% in the euro zone. What is the one-year forward rate that;should prevail?;Answer;?;Question 3;0 out of 3 points;Suppose you observe a spot exchange rate of;$1.50/?. If interest rates are 3% APR in the U.S. and 5% APR in the euro;zone, what is the no-arbitrage 1-year forward rate?;Answer;?;Question 4;3 out of 3 points;Suppose you observe a spot exchange rate of;$2.00/?. If interest rates are 5% APR in the U.S. and 2% APR in the U.K.;what is the no-arbitrage 1-year forward rate?;Answer;?;Question 5;3 out of 3 points;Covered Interest Arbitrage (CIA) activities will;result in;Answer;?;Question 6;3 out of 3 points;Researchers have found that the fundamental;approach to exchange rate forecasting;Answer;?;Question 7;3 out of 3 points;Suppose that the annual interest rate is 5.0;percent in the United States and 3.5 percent in Germany, and that the spot;exchange rate is $1.12/? and the forward exchange rate, with one-year;maturity, is $1.16/?. Assume that an arbitrager can borrow up to $1,000,000.;If an astute trader finds an arbitrage, what is the net cash flow in one;year?;Answer;?;Question 8;3 out of 3 points;The Fisher effect can be written for the United;States as;Answer;?;Question 9;3 out of 3 points;Forward parity states that;Answer;?;Question 10;3 out of 3 points;The Fisher effect states that;Answer;?;Question 11;3 out of 3 points;Consider a bank dealer who faces the following;spot rates and interest rates. What should he set his 1-year forward bid;price at?;Answer;?;Question 12;3 out of 3 points;A formal statement of IRP is;Answer;?;Question 13;3 out of 3 points;According to the technical approach, what matters;in exchange rate determination is;Answer;?;Question 14;3 out of 3 points;If the annual inflation rate is 2.5 percent in;the United States and 4 percent in the U.K., and the dollar appreciated;against the pound by 1.5 percent, then the real exchange rate, assuming that;PPP initially held, is _____.;Answer;?;Question 15;3 out of 3 points;Suppose that you are the treasurer of IBM with an;extra US$1,000,000 to invest for six months. You are considering the purchase;of U.S. T-bills that yield 1.810% (that's a six month rate, not an annual;rate by the way) and have a maturity of 26 weeks. The spot exchange rate is;$1.00 = ?100, and the six month forward rate is $1.00 = ?110. The interest;rate in Japan (on an investment of comparable risk) is 13 percent. What is;your strategy?;Answer;?;Question 16;3 out of 3 points;Find the value of a one-year put option on;$15,000 with a strike price of ?10,000. In one year the exchange rate;(currently S0($/?) =;$1.50/?) can increase by 60% or decrease by 37.5% (i.e. u = 1.6;and d = 0.625). The current one-year interest rate in the;U.S. is i$= 4% and the current one-year interest rate in the euro zone is i?= 4%.;Answer;?;Question 17;3 out of 3 points;For European currency options written on euro;with a strike price in dollars, what of the effect of an increase in;the exchange rate S(?/$)?;Answer;?;Question 18;3 out of 3 points;Most exchange traded currency options;Answer;?;Question 19;3 out of 3 points;The current spot exchange rate is $1.55 = ?1.00;and the three-month forward rate is $1.60 = ?1.00. Consider a three-month;American call option on ?62,500 with a strike price of $1.50 = ?1.00.;Immediate exercise of this option will generate a profit of;Answer;?;Question 20;3 out of 3 points;Today's settlement price on a Chicago Mercantile;Exchange (CME) Yen futures contract is $0.8011/?100. Your margin account;currently has a balance of $2,000. The next three days' settlement prices are;$0.8057/?100, $0.7996/?100, and $0.7985/?100. (The contractual size of one;CME Yen contract is ?12,500,000). If you have a short position in one futures;contract, the changes in the margin account from daily marking-to-market will;result in the balance of the margin account after the third day to be;Answer;?;Question 21;3 out of 3 points;Which equation is used to define the futures;price?;Answer;?;Question 22;0 out of 3 points;Yesterday, you entered into a futures contract to;buy ?62,500 at $1.50 per ?. Suppose the futures price closes today at $1.46.;How much have you made/lost?;Answer;?;Question 23;3 out of 3 points;Find the hedge ratio for a put option on $15,000;with a strike price of ?10,000. In one period the exchange rate (currently;S($/?) = $1.50/?) can increase by 60% or decrease by 37.5% (i.e. u =;1.6 and d = 0.625).;Answer;?;Question 24;3 out of 3 points;The current spot exchange rate is $1.55 = ?1.00;and the three-month forward rate is $1.60 = ?1.00. Consider a three-month;American call option on ?62,500 with a strike price of $1.50 = ?1.00. If you;pay an option premium of $5,000 to buy this call, at what exchange rate will;you break-even?;Answer;?;Question 25;3 out of 3 points;American call and put premiums;Answer;?;Question 26;3 out of 3 points;Find the dollar value today of a 1-period;at-the-money call option on ?10,000. The spot;exchange rate is ?1.00 = $1.25. In the next period, the euro can increase in;dollar value to $2.00 or fall to $1.00. The interest rate in dollars is i$ = 27.50%, the interest rate in euro is i?= 2%.;Answer;?;Question 27;3 out of 3 points;For European currency options written on euro;with a strike price in dollars, what of the effect of an increase in r$ relative to r??;Answer;?;Question 28;3 out of 3 points;Yesterday, you entered into a futures contract to;sell ?62,500 at $1.50 per ?. Your initial performance bond is $1,500 and your;maintenance level is $500. At what settle price will you get a demand for;additional funds to be posted?;Answer;?;Question 29;3 out of 3 points;For European options, what of the effect of an increase in St?;Answer;?;Question 30;3 out of 3 points;An "option" is;Answer

 

Paper#46426 | Written in 18-Jul-2015

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