国际金融英文版习题Chapter_3

INTERNATIONAL FINANCE

Assignment Problems (3) Name: Student#: I. Choose the correct answer for the following questions (only ONE correct answer) (2 credits for each question, total credits 2 x 25 = 50)

1. Interbank quotations that include the United States dollars are conventionally given in __________, which state the foreign currency price of one U.S. dollar, such as a bid price of SFr 0.85/$.

A. indirect quote

B. direct quote

C. American quote

D. European quote

2. The spot exchange rate published in financial newspapers is usually the __________.

A. nominal exchange rate

B. real exchange rate

C. effective exchange rate

D. equilibrium exchange rate

3. The foreign exchange refers to the __________.

A. foreign bank notes and coins

B. demand deposits in foreign banks

C. foreign securities that can be easily cashed

D. all of the above

4. The functions of the foreign exchange market come down to __________.

A. converting the currency of one country into the currency of another

B. providing some insurance against the foreign exchange risk

C. making the foreign exchange speculation easy

D. Only A and B are true.

5. Which of the following is NOT true regarding the foreign exchange market?

A. It is the place through which people exchange one currency for another.

B. The exchange rate nowadays is mainly determined by the market forces.

C. Most foreign exchange transactions are physically completed in this market.

D. All of the above are true.

6. The world largest foreign exchange markets are __________ respectively.

A. London, New York and Tokyo

B. London, Paris and Frankfurt

C. London, Hong Kong and Singapore

D. London, Zurich and Bahrain

7. The foreign exchange market is NOT efficient because __________.

A. monetary authorities dominate the foreign exchange market and everybody knows that by definition, central banks are inefficient

B. commercial banks and other participants of the market do not compete with one another due to the fact that transaction takes place around the world and not in a single centralized location

C. foreign exchange dealers have different prices such as bid and ask prices

D. None of the reasons listed are correct because the foreign exchange market is an efficient market

8. __________ earn a profit by a bid-ask spread on currencies they buy and sell. __________ on the other hand, earn a profit by bringing together buyers and sellers of foreign exchanges and earning a commission on each sale and purchase.

A. Foreign exchange brokers; foreign exchange dealers

B. Foreign exchange dealers; foreign exchange brokers

C. arbitragers; speculators

D. commercial banks; central banks

9. Most foreign exchange transactions are through the U.S. dollars. If the transaction is expressed as the currencies per dollar, this is known as __________ whereas __________ are expressed as dollars per currency.

A. direct quote; indirect quote

B. indirect quote; direct quote

C. European quote; American quote

D. American quote, European quote

10. From the viewpoint of a Japanese investor, which of the following would be a direct quote?

A. SFr 1.25/€

B. $1.55/?

C. ￥ 110/€

D. €0.0091/ ￥

11. Which of the following is true about the foreign exchange market?

A. It is a global network of banks, brokers, and foreign exchange dealers connected by electronic communications system.

B. The foreign exchange market is usually located in a particular place.

C. The foreign exchange rates are usually determined by the related monetary authorities.

D. The main participants in this market are currency speculators from different countries.

12. The extent to which the income from individual transactions is affected by fluctuations in foreign exchange values is considered to be _________.

A. Translation exposure

B. economic exposure

C. transaction exposure

D. accounting exposure

13. Which of the following exchange rates is adjusted for price changes?

A. nominal exchange rate

B. real exchange rate

C. effective exchange rate

D. equilibrium exchange rate

14. Suppose the exchange rate of the RMB versus U.S. dollar is ￥6.8523/$ now. If the RMB were to undergo a 10% depreciation, the new exchange rate in terms of ￥/$ would be:

A. 6.1671

B. 7.5375

C. 6.9238

D. 7.6135

15. At least in a U.S. MNC’s financial accounting statement, if the value of the euro depreciates rapidly against that of the dollar over a year, this would reduce the dollar value of the euro profit made by the European subsidiary. This is a typical __________.

A. transaction exposure

B. translation exposure

C. economic exposure

D. operating exposure

16. A Japanese-based firm expects to receive pound-payment in 6 months. The company has a (an) __________.

A. economic exposure

B. accounting exposure

C. long position in sterling

D. short position in sterling

17 The exposure to foreign exchange risk known as Translation Exposure may be defined as __________.

A. change in reported owner’s equity in consolidated financial statements caused by a change in exchange rates

B. the impact of settling outstanding obligations entered into before change in exchange rates but to be settled after change in exchange rates

C. the change in expected future cash flows arising from an unexpected change in exchange rates

D. All of the above

18 When a firm deals with foreign trade or investment, it usually has foreign exchange risk exposure. So if an American firm expects to receive a dollar-payment

from a Chinese company in the next 30 days, the U.S. firm has the possible __________.

A. economic exposure

B. transaction exposure

C. translation exposure

D. none of the above

19. In order to avoid the possible loss because of the exchange rate fluctuations, a firm that has a __________ position in foreign exchanges can __________ that position in the forward market.

A. short; sell

B. long; sell

C. long; buy

D. none of the above

20. A forward contract to deliver Japanese yens for Swiss francs could be described either as __________ or __________,

A. selling yens forward; buying francs forward

B. buying francs forward; buying yens forward

C. selling yens forward; selling francs forward

D. selling francs forward; buying yens forward

21. Dollars are trading at S0SFr/$=SFr0.7465/$ in the spot market. The 90-day forward rate is F1SFr/$=SFr0.7432/$. So the forward __________ on the dollar in basis points is __________:

A. discount, 0.0033

B. discount, 33

C. premium, 0.0033

D. premium, 33

22. If the spot rate is $1.35/€, 3-month forward rate is $1.36/€, which of the following is NOT true?

A. euro is at forward premium by 100 points.

B. dollar is at forward discount by 100 points.

C. dollar is at forward discount by 55 points.

D. euro is at forward premium by 2.96% p.a.

23. If the spot C$/$ rate is 1.0305/15, forward dollar is 25/30 premium, the outright forward quote in American term should be __________.

A. 1.0330 – 1.0345

B. 1.0280 – 1.0285

C. 0.9681 – 0.9667

D. 0.9728 – 0.9723

24. If the spot C$/$ rate is 1.0305/15, forward dollar is 25/30 premium, the $/C$ forward quote in terms of points should be __________.

A. 30/25

B. 25/30

C. – (23/28)

D. – (28/23)

25. The current U.S. dollar exchange rate is ￥85/$. If the 90-day forward dollar rate is ￥90/$, then the yen is selling at a per annum __________ of __________.

A. premium; 5.88%

B. discount; 5.56%

C. premium; 23.52%

D. discount; 22.23%

II. Problems

Questions 1 through 10 are based on the information presented in Table 3.1. (2 credits for each question, total credits 2 x 10 = 20)

Table 3.1

Country Exchange rate Exchange rate CPI V olume of V olume of (2008) (2009) (2008) exports to U.S imports from U.S. Germany €0.75/$ €0.70/$ 102.5 $200m $350m

Mexico Mex$11.8/$ Mex$12.20/$ 110.5 $120m $240m

U.S. 105.3

1. The real exchange rate of the dollar against the euro in 2009 was __________.

2. The real exchange rate of the dollar against the peso in 2009 was __________.

3. The dollar was __________ against the euro in nominal term by __________.

A. appreciated; 6.67%

B. depreciated; 6.67%

C. appreciated; 7.14%

D depreciated; 7.14%

4. The Mexican peso was __________ against the dollar in nominal term by __________.

A. appreciated; 3.39%

B. depreciated; 3.39%

C. appreciated; 3.28%

D. depreciated; 3.28%

5. The volume of the German foreign trade with the U.S. was __________.

6. The volume of the Mexican foreign trade with the U.S. was __________.

7. Assume the U.S. trades only with the Germany and Mexico. Now if we want to calculate the dollar effective exchange rate in 2009 against a basket of currencies of euro and Mexican peso, the weight assigned to the euro should be __________.

8. The weight assigned to the peso should be __________.

9. Assume the 2008 is the base year. The dollar effective exchange rate in 2009 was __________.

10. Was the dollar generally stronger or weaker in 2009 according to your calculation?

11. The following exchange rates are available to you.

Fuji Bank ￥80.00/$

United Bank of Switzerland SFr0.8900/$

Deutsche Bank ￥95.00/SFr

Assume you have an initial SFr10 million. Can you make a profit via triangular arbitrage? If so, show steps and calculate the amount of profit in Swiss francs. (8 credits)

12. If the dollar appreciates 1000% against the ruble, by what percentage does the ruble depreciate against the dollar? (5 credits)

13. As a percentage of an arbitrary starting amount, about how large would transactions costs have to be to make arbitrage between the exchange rates S SFr/$= SFr1.7223/$, S$/￥= $0.009711/￥, and S￥/SFr = ￥61.740/SFr unprofitable? Explain. (7 credits

14. You are given the following exchange rates:

S￥/A$ = 67.05 – 68.75

S￡/A$ = 0.3590 – 0.3670

Calculate the bid and ask rate of S￥/￡: (5 credits)

15. Suppose the spot quotation on the Swiss franc (CHF) in New York is USD0.9442 –52 and the spot quotation on the Euro (EUR) is USD1.3460 –68. Compute the percentage bid-ask spreads on the CHF/EUR quote. ( 5 credits)

Answers to Assignment Problems (3)

Part II

1. 0.70 x (105.3/10

2.5) = 0.7 x 1.0273 = 0.7191

2. 12.2 x (105.3/110.5) = 12.2 x .9529 = 11.6259

3. B (0.7 /.75) – 1 = -6.67%

4. D (1/12.2)/(1/11.8) – 1 = -3.28%

5. 550

6. 360

7. 550/910 = 60.44%

8. 360/910 = 39.56

9. (0.70/0.75)(60.44%) + (12.2/11.8)(39.56%) = .5641 + 0.4090 = .9731 = 97.31%

10. weaker, because dollar depreciated by 2.69%.

11. Since S￥/$S$/SFr S SFr/￥= 80 x 1/0.8900 x 1/95.00 = 0.946186 < 1, there is an arbitrage opportunity.

Steps:①Buy ￥ from Deutsche Bank, SFr10 million x 95.00 = ￥950 million

②Buy $from Fuji Bank, $950 m / 80.00 = $11.875 m

③Buy SFr from UBS, $11.875 x 0.8900 = SFr10.56875 m

Profit (ignoring transaction fees):

SFr10.56875 – SFr10 = 0.56875 million = 568,750

12. (x – 1) = 1000%; 1/11 – 1 = 90.9%

13. S SFr/$ S$/￥S￥/SFr = SFr1.7223/$ x $0.009711/￥ x ￥61.740/SFr = 1.0326

If transaction costs exceed $0.0326 (3.26%), the arbitrage is unprofitable.

14. Given: S￥/A$ = 67.05 – 68.75

S￡/A$ = 0.3590 – 0.3670

So, S￥/? = 67.05/0.3670 = 182.70 (bid)

S￡/? = 68.75/0.3590 = 191.50 (ask)

15. Given: USD0.9442 – 52/SFr

USD1.3460 – 68/SFr

So, S SRr/€ = 1.3460/0.9452 =1.424 (bid)

S SFr/€ = 1.3468/0.9442 = 1.4264 (ask)

Bid-ask margin = (1.4264 – 1.424) / 1.4264 = 0.1683%