26 May Question · As of today, the spot exchange rate is €1.00 = $1.25 and the rates of inflation
Question
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| 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?
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· 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?
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· 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?
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· 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?
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· Question 5
3 out of 3 points
| Covered Interest Arbitrage (CIA) activities will result in
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· Question 6
3 out of 3 points
| Researchers have found that the fundamental approach to exchange rate forecasting
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· 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?
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· Question 8
3 out of 3 points
| The Fisher effect can be written for the United States as:
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· Question 9
3 out of 3 points
| Forward parity states that
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· Question 10
3 out of 3 points
| The Fisher effect states that
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· 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?
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· Question 12
3 out of 3 points
| A formal statement of IRP is
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· Question 13
3 out of 3 points
| According to the technical approach, what matters in exchange rate determination is
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· 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 _____.
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· 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?
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· 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%.
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· 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(€/$)?
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· Question 18
3 out of 3 points
| Most exchange traded currency options
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· 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
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· 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 |
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