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finance problems and mcqs




Question;A. Suppose the original exchange rate for British pounds was $1.50/? and moved to $1.75 after a positive change in the forecast for the British economy. What was the rate of appreciation for the pound against the dollar?a. 40.0%b. 16.7%c. 14.3%d. 25.5%B. In order to boost the value of the euro relative to the dollara the Fed should sell dollars for euro and the EuropeanCentral Bank should buy euro with dollarsb. the Fed should sell dollars for euro and the EuropeanCentral Bank should buy dollars with euroc. the Fed should sell euro for dollars and the EuropeanCentral Bank should sell dollars for eurod. the Fed should sell euro for dollars and the EuropeanCentral Bank should buy euro with dollarsC. The___________is an accounting statement that summarizes all the economic transactions between the home country and the rest of the world.a. balance of paymentsb. balance of tradec. current accountd. capital accountD. The current account recordsa. public and private investment and lending activitiesb. flows of goods, services, and transfersc. changes in holdings of gold and foreign currenciesd. reserve assetsE. Gifts and grants overseas are known as __________on the balance of payment statement.a. importsb. exportsc. unilateral transfersd. capital accounts2. Some estimates suggest that $550 billion in currency is held outside theUnited States.a. What is the value ofthe seigniorage associated with these overseas dollars?Assume that dollar interest rates are 7%.b. Who realizes the benefits of this seigniorage in the United States?3. Recently, a U.S. arbitrageur obtained the following quotes:New York: $1.6895/? 1$1.1797/ Euro 1Frankfurt: Euro 1.4629/? 1Are there any arbitrage opportunities? If so:(a) What transactions should a U.S. arbitrageur undertake?(b) What is the arbitrageur's profit in dollars per dollar transacted?4.a. The spot and 30-day forward rates for the Dutch guilder are $0.3075 and $0.3120, respectively. Compute the annual percentage forward premium or discount on the guilder.b. If the expected annual inflation in the U.S. is 6% and for Mexico it is80%, what do you expect the $: peso exchange rate to be one year from now? Currently, one peso is selling for $0.005.c. Computer, U.S.A. wants to raise $20 million to build a plant in New Jersey. It can choose borrowing from the following alternatives at the following annual interest rates: US loan @ 10, euro loan @ 15%, yen loan@ 6%.It expects the euro to depreciate 7% against the dollar annually, and the yen to appreciate 3% against the dollar. Find the effective cost from the U.S. viewpoint of the euro and the yen loans. Where should the firm borrow, and why?5. In the following, circle the correct answer and, where appropriate, show how you arrive at your solution.i. The basic difference(s) between forward and future contracts is thata. forward contracts are individually tailored while futures contracts are standardizedb. forward contracts are negotiated with banks whereas futures contracts are bought and sold on an organized exchangec. forward contracts have no daily limits on price fluctuations whereas most futures contracts have a daily limit on price fluctuationsd. all of the abovee. none of the aboveii. Suppose you are holding a long position in a Swiss franc futures contract that matures in 76 days, the agreed-upon price is $0.850 for SF 125,000. At the close of trading today, the futures price has risen to $0.860. Under marking to market, you nowa. hold a futures contract that has risen in value by $1,250b. hold a futures contract that has fallen in value by $625c. will receive $1,250 and a new futures contract priced at$0.860d. must pay over $1,250 to the seller of the futures contracte. none of the above6. You should be aware of approximate foreign exchange and interest rates.In the following table, fill in the appropriate foreign exchange rates and interest rates. Your response will be judged correct if it is within plus/minus 3% of the rates prevailing at the closing of the market on the Monday following the day the test was handed out.Currency FX Rate Your ResponseCanadian Dollar $/CD $Chinese Yuan $/CY $Hong Kong Dollar $$/HKD $Pound Sterling $/? $Mexican Peso $/MPeso $Japanese Yen Y/$ yEuro $/EuroSDR $/SDR $Annualized Interest Rate3-month US$LIBOR_____________%3-month UK?LIBOR_____________%7. Your company has $10 million in excess cash for 3 months. As CFO, you can invest using the exchange rates and interest rates given above. You don't want any foreign exchange exposure. Will you invest in US$ or UK?? Why? If you need more information, please obtain it from other sources. Show your calculations.8.Definei. Transaction Exposureii. Translation or Accounting Exposureiii. Economic Exposureiv.. How can Economic Exposure be hedged?v.. Explain the rationale, or lack of it, behind the following quote attributed to a risk management consultant. "Some purely domestic firms should consider entering the international market to reduce their foreign exchange risk.


Paper#50017 | Written in 18-Jul-2015

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