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strayer university finc535 Week 3 Homework

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Question;Week 3 Homework;Strayer University;Fall 2013;18. Factor;Affecting Exchange Rates;A. Identify the;most obvious economic reason for the persistent depreciation of the peso.;B. High interest rates are commonly expected to strengthen a;country?s currency because they;can encourage foreign investment in securities in that country, which;results in the exchange of;other currencies for that currency. Yet, the peso?s value has declined against;the dollar over;most years even though Mexican interest rates are typically much;higher than U.S. interest rates.;Thus, it appears that the high Mexican interest rates do not;attract substantial U.S. investment in;Mexico?s securities. Why do you think U.S. investors do not try to;capitalize on the high interest;rates in Mexico?;C. Why do you think the bid/ask spread is higher for pesos than for;currencies of industrialized;countries? How does this;affect a U.S. firm that does substantial business in Mexico?;23. Assessing;the Euro?s Potential Movements;Based on the;information provided in this question, will the euro appreciate, depreciate, or;stay at;about the same;level against the dollar over the next year? Explain;28. Impact of;Economy on Exchange Rates;Explain why and;how (which direction) the euro?s value would change today based on this;information.;24. Risk of;Currency Futures;A. Explain why;the central bank?s intervention caused such panic among currency futures;traders;with buy;positions.;B. Explain why;the floor broker?s willingness to sell 300 pond futures contracts at the going;market rate;aroused such concern. What might this action signal to other brokers?;C. Explain why;speculators with short (sell) positions could benefits as a result of the;central;bank?s;intervention.;D. Some trades with buy positions may have responded immediately to;the central bank?s;intervention by selling futures contracts.why would some;speculators with buy positions;unchanged or even increase their positions by purchasing more;futures contracts in response to;the central bank?s interventions;25. Estimating;Profit from Currency Futures and options;A.;Determine;the total dollar amount of your profit or loss from your position in the put;option?;B.;Now;assume that instead of taking a position in the put option 1 year ago, you sold;a futures;contract on;100,000 Euros with a settlement date of 1 year. Determine the total dollar;amount of your;profit or loss.;30. Speculating;with Currency Straddles;a.;Describe;how Maggie could use straddles to speculate on the euro?s value.;b. At option expiration, the value of the;euro is $1.30. What is Maggie?s total profit or;loss from a;long straddle position?;b.;What;is Maggie?s total profit or loss from a long straddle position if the value of;the euro;is;$1.05 at option expiration?;c.;What;is Maggie?s total profit or loss from a long straddle position if the value of;the euro;at;option expiration is still $1.15?;E.;Given;your answers to the questions above, when is it advantageous for a speculator;to;engage in a long straddle? When is it advantageous to engage in a;short straddle?.

 

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