Chapter 5 Practice questions and answer keys讲解

Lecture#3–PracticeQuestions–InternationalFinancialManagement456

Chapter5–TheMarketforForeignExchange

reignexchangetransactionsarefor

entionbycentralbanks.

anktradesbetweeninternationalbanksornonbankdealers.

trade.

seofhardcurrencies.

ferencebetweenabrokerandadealeris

sselldrugs;brokerssellhouses.

sbringtogetherbuyersandsellers,butcarrynoinventory;dealersstandreadytobuy

andsellfromtheirinventory.

stransactinstocksandbonds;currencyisboughtandsoldthroughdealers.

theabove

entionintheforeignexchangemarketistheprocessof

albankrequiringthecommercialbanksofthatcountrytotradeatasetpricelevel.

cialbanksindifferentcountriescoordinatingeffortsinordertostabilizeoneormore

currencies.

albankbuyingorsellingitscurrencyinordertoinfluenceitsvalue.

ernmentofacountryprohibitingtransactionsinoneormorecurrencies.

tmarket

esthealmost-immediatepurchaseorsaleofforeignexchange.

esthesaleoffutures,forwards,andoptionsonforeignexchange.

laceonlyonthefloorofaphysicalexchange.

heabove.

5.

Usingthetableshown,whatisthemostcurrentspotexchangerateshownforBritishpounds?

ctive.

A.$1.61=£1.00

B.$1.60=£1.00

C.$1.00=£0.625

D.$1.72=£1.00

ethatthecurrentexchangerateis€0.80=$ectquote,fromtheU.S.

perspectiveis

A.€1.00=$1.25.

B.€0.80=$1.00.

C.£1.00=$1.80.

theabove

ethatthecurrentexchangerateis€1.00=$irectquote,fromtheU.S.

perspectiveis

A.€1.00=$1.60.

B.€0.6250=$1.00.

C.€1.60=$1.00.

theabove

price

ricethatthedealerhasjustpaidforsomething,hishistoricalcostofthemostrecent

trade.

ricethatadealerstandsreadytopay.

onlytoauctionslikeeBay,notoverthecountertransactionswithdealers.

ricethatadealerstandsreadytosellat.

ethespotaskexchangerate,Sa($|£),is$1.90=£1.00andthespotbidexchangerate,

bS($|£),is$1.89=£eretobuy$10,000,000worthofBritishpoundsandthensell

themfiveminuteslater,howmuchofyour$10,000,000wouldbe"eaten"bythebid-askspread?

A.$1,000,000

B.$52,910.05

C.$100,000

D.$52,631.58

$/€bidandaskpricesare$1.50/€and$1.51/€,respectively,thecorresponding€/$bidand

askpricesare

A.€0.6667and€0.6623.

B.$1.51and$1.50.

C.€0.6623and€0.6667.

bedeterminedwiththeinformationgiven.

nterbankmarket,thestandardsizeofatradeamonglargebanksinthemajorcurrenciesis

U.S.-dollarequivalentof$10,000,000,000.

U.S.-dollarequivalentof$10,000,000.

U.S.-dollarequivalentof$100,000.

U.S.-dollarequivalentof$1,000.

lar-euroexchangerateis$1.25=€1.00andthedollar-yenexchangerateis¥100=$1.00.

Whatistheeuro-yencrossrate?

A.¥125=€1.00

B.¥1.00=€125

C.¥1.00=€0.80

theabove

eyouobservethefollowingexchangerates:€1=$1.25;£1=$atetheeuro-

poundexchangerate.

A.€1=£1.60

B.€1=£0.625

C.€2.50=£1

D.€1=£2.50

eyouobservethefollowingexchangerates:€1=$1.60;£1=$atetheeuro-

poundexchangerate.

A.€1.3333=£1.00

B.£1.3333=€1.00

C.€3.00=£1

D.€1.25=£1.00

lar-euroexchangerateisquotedas$1.60=

€1.00andthedollar-poundexchangerateisquotedat$2.00=£1.00.

A.€1.25/£1.00

B.$1.25/£1.00

C.£1.25/€1.00

D.€0.80/£1.00

o-poundcrossexchangeratecanbecomputedas:

A.S(€/£)=S($/£)S(€/$)

B.

C.

heabove

eabankcustomerwith€1,000,

dollar-euroexchangerateisquotedas$1.60=€1.00andthedollar-yenexchangerateisquotedat

$1.00=¥yyenwillthecustomerget?

A.¥192,000,000

B.¥5,208,333

C.¥75,000,000

D.¥5,208.33

eyouobservethefollowingexchangerates:€1=$.85;£1=$1.60;and€2.00=£1.00.

Startingwith$1,000,000,howcanyoumakemoney?

ge$1mfor£625,000at£1=$€1,250,000at€2=£1.00;tradefor

$1,062,500at€1=$.85.

ithdollars,exchangeforeurosat€1=$.85;exchangeforpoundsat€2.00=£1.00;

exchangefordollarsat£1=$1.60.

itheuros;exchangeforpounds;exchangefordollars;exchangeforeuros.

trageprofitispossible.

aU.S.-basedtreasurerwith$1,000,lar-euroexchangerateisquoted

as$1.20=€1.00andthedollar-poundexchangerateisquotedat$1.80=£kquotes

youacrossrateof£1.00=€1.50howmuchmoneycananastutetradermake?

trageispossible

B.$1,160,000

C.$500,000

D.$250,000

aU.S.-basedtreasurerwith$1,000,lar-euroexchangerateisquoted

as$1.60=€1.00andthedollar-poundexchangerateisquotedat$2.00=£kquotes

youacrossrateof£1.00=€1.20howcanyoumakemoney?

trageispossible

oat$1.60/€,buy£at€1.20/£,sell£at$2/£

£$2/£,buy€at€1.20/£,sell€at$1.60/€

gaporedollar—(S$/$)spotexchangerateisS$1.60/$,theCanadiandollar—

(CD/$)spotrateisCD1.33/$andtheS$/inethetriangulararbitrage

profitthatispossibleifyouhave$1,000,000.

A.$44,063profit

B.$46,093loss

itispossible

D.$46,093profit

microstructurerefersto

icmechanicsofhowamarketplaceoperates.

icsofhowtomakesmall(micro-sized)currencytrades.

roeconomicvariablessuchasGDPandinflationaredetermined.

theabove

wardprice

igherthanthespotprice.

hesameasthespotprice.

essthanthespotprice.

heabove

workinginAmericanquotes,iftheforwardpriceishigherthanthespotprice

rencyistradingatapremiumintheforwardmarket.

rencyistradingatadiscountintheforwardmarket.

ushouldbuyatthespot,holdontoitandsellattheforward—it'sabuilt-inarbitrage.

heabove—itreallydependsifyou'retalkingAmericanorEuropeanquotes.

wardmarket

escontractingtodayforthefuturepurchaseofsaleofforeignexchangeatthespotrate

thatwillprevailatthematurityofthecontract.

escontractingtodayforthefuturepurchaseofsaleofforeignexchangeatapriceagreed

upontoday.

escontractingtodayfortherightbutnotobligationtothefuturepurchaseofsaleof

foreignexchangeatapriceagreedupontoday.

theabove

asagreedtobuyforeignexchangeforward

eashortpositionintheforwardcontract.

ealongpositionintheforwardcontract.

heexchangeratemoves,youhaven'tmademoney,soyou'reneithershortnorlong.

ealongpositioninthespotmarket.

rentspotexchangerateis$1.55/€andthethree-monthforwardrateis$1.50/€.Youenter

intoashortpositionon€1,rity,thespotexchangerateis$1.60/€.Howmuchhave

youmadeorlost?

$100

€100

$50

$150

rentspotexchangerateis$1.55/€andthethree-monthforwardrateis$1.50/€.Basedon

youranalysisoftheexchangerate,youareconfidentthatthespotexchangeratewillbe$1.52/€

thatyouwouldliketobuyorsell€1,000,tionsdoyouneed

totaketospeculateintheforwardmarket?

ongpositioninaforwardcontracton€1,000,000at$1.50/€.

hortpositioninaforwardcontracton€1,000,000at$1.50/€.

otodayatthespotrate,sellthemforward.

rotodayatthespotrate,buythemforward.

rentspotexchangerateis$1.45/€andthethree-monthforwardrateis$1.55/€.Based

uponyoureconomicforecast,youareprettyconfidentthatthespotexchangeratewillbe$1.50/€

thatyouwouldliketobuyorsell€100,tionswouldyou

taketospeculateintheforwardmarket?Howmuchwillyoumakeifyourpredictioniscorrect?

'rerightyouwillmake$15,000.

'rerightyouwillmake$5,000.

'rerightyouwillmake$5,000.

'rerightyouwillmake$15,000.

era

forwardrateis$1.75=€1.00;thecontractsizeis€62,aturityofthecontractthespot

exchangerateis$1.65=€1.00.

derhaslost$625.

derhaslost$6,250.

derhasmade$6,250.

derhaslost$66,287.88

rentspotexchangerateis$1.55/€andthethree-monthforwardrateis$1.50/€.Basedon

youranalysisoftheexchangerate,youareconfidentthatthespotexchangeratewillbe$1.62/€

thatyouwouldliketobuyorsell€1,000,tionsdoyouneed

totaketospeculateintheforwardmarket?Whatistheexpecteddollarprofitfromspeculation?

€1,000,000forwardfor$1.50/€.

€1,000,000forwardfor$1.50/€.

reemonths,ifyourforecastiscorrectbuy€1,000,000at$1.52/€.

€1,000,000todayat$1.55/€;waitthreemonths,ifyourforecastiscorrectsell€1,000,000

at$1.62/€.

urrencytradesatapremiumintheforwardmarket

hangerateismorethanonedollar(e.g.€1.00=$1.28).

hangerateislessthanonedollar.

wardrateislessthanthespotrate.

wardrateismorethanthespotrate.

urrencytradesatadiscountintheforwardmarket

wardrateislessthanthespotrate.

wardrateismorethanthespotrate.

wardexchangerateislessthanonedollar(e.g.€1.00=$0.928).

hangerateislessthanitwasyesterday.

/$spotexchangerateisSF1.25/$andthe180dayforwardexchangerateisSF1.30/$.The

forwardpremium(discount)is

laristradingatan8%premiumtotheSwissfrancfordeliveryin180days.

laristradingata4%premiumtotheSwissfrancfordeliveryin180days.

laristradingatan8%discounttotheSwissfrancfordeliveryin180days.

laristradingata4%discounttotheSwissfrancfordeliveryin180days.

€/$spotexchangerateis$1.50/€andthe120dayforwardexchangerateis1.45/€.The

forwardpremium(discount)is

laristradingatan8%premiumtotheeurofordeliveryin120days.

laristradingata5%premiumtotheSwissfrancfordeliveryin120days.

laristradingata10%discounttotheeurofordeliveryin120days.

laristradingata5%discounttotheeurofordeliveryin120days.

36..TheSF/$spotexchangerateisSF1.25/$the

outright180dayforwardexchangerate?

1.30/$

1.35/$

6.25/$

theabove

erthefollowingspotandforwardratequotationsfortheSwissfranc?

Whichofthefollowingistrue:

ssfrancisdefinitelygoingtobeworthmoredollarsinsixmonths.

ssfrancisprobablygoingtobeworthlessindollarsinsixmonths.

ssfrancistradingataforwarddiscount.

ssfrancistradingataforwardpremium.

erthefollowingspotandforwardratequotationsfortheSwissfranc?

Whichofthefollowingistrue:

ssfrancisdefinitelygoingtobeworthmoredollarsinsixmonths.

ssfrancisprobablygoingtobeworthlessindollarsinsixmonths.

ssfrancistradingataforwarddiscount.

ssfrancistradingataforwardpremium.

ansactions

ethesimultaneoussale(orpurchase)ofspotforeignexchangeagainstaforward

purchase(orsale)ofapproximatelyanequalamountoftheforeigncurrency.

tforabouthalfofInterbankFXtrading.

.

heabove

gestandmostactivefinancialmarketintheworldis

etStreetExchangeinLondon.

EinewYork.

arket.

theabove.

AnswerKey:

1.B

2.B

3.C

4.A

5.B

6.A

7.B

8.B

9.D

10.C

11.B

12.A

rectanswershouldbeB.

14.D

15.A

16.D

17.A

18.A

19.A

20.B

21.D

22.A

23.D

24.A

25.B

26.B

27.A

28.A

29.C

30.B

31.B

32.D

33.A

34.A

35.C

36.A

37.D

38.D

39.A

40.C