Consider the following quoted spot rates and identify which statement(s) below is (are) true: Spot Bid Rate Spot Ask Rate AUD1.5455/USD AUD1.5656/USD USD1.2599/GBP USD1.2685/GBP AUD1.9547/GBP AUD1.9638/GBP O a. A riskless arbitrage can be made only by going "clockwise" around the triangle. O b. None of the options in this question is true. O c. A riskless arbitrage can be made only by going "anti-clockwise" around the triangle.

Consider the following quoted spot rates and identify which statement(s) below is (are) true: Spot Bid Rate Spot Ask Rate AUD1.5455/USD AUD1.5656/USD USD1.2599/GBP USD1.2685/GBP AUD1.9547/GBP AUD1.9638/GBP O a. A riskless arbitrage can be made only by going "clockwise" around the triangle. O b. None of the options in this question is true. O c. A riskless arbitrage can be made only by going "anti-clockwise" around the triangle.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Assume a company needs to hedge payables. Which of the following conditions has to be met so a company would choose the options hedge? The break-even spot exchange rate is greater than the forward exchange rate. The break-even spot exchange rate is less than the forward exchange rate. The break-even spot exchange rate is less than the spot exchange rate. The break-even spot exchange rate is greater than the spot exchange rate.
h) discuss the relationship between the prices of puts, calls, and forward/futures contracts on the same underlying asset using the put-call-forward/futures parity. i) discuss the boundary conditions on the prices of American and European call option contracts on futures. j) explain and discuss the use of interest rate parity in pricing foreign currency forwards and futures. k) describe how spot prices are determined using the cost-of-carry model.
Q9. How would you hedge the risk of a price rise using a derivative? Group of answer choices 1. You would take out a spot contract to sell the underlying. 2. You would take out a forward contract to sell the underlying. 3. You would take out a spot contract to buy the underlying. 4. You would take out a forward contract to buy the underlying.
To hedge payables, the firm will purchase a currency call option on the payable foreign currency. The firm can use the call option to buy foreign currency at a specified price. Why should the company, in this case, purchase a call option than a Forward contract? Maybe to make it easy on me, you can illustrate the answer by highlighting the situations suitable for options and Forward contracts. For example, "when this situation occurs....., then that hedging we should use .... because of XYZ reasons/effects on profitability".
Provide a numerical example of an arbitrage strategy for situations where the forward is trading above, and below the theoretical forward price.
If the forward rate is expected to be an unbiased estimate of the future spot rate, and interest rate parity holds, then: a. the international Fisher effect (IFE) is refuted. b. the international Fisher effect (IFE) is supported. c. covered interest arbitrage is feasible. d. the average absolute error from forecasting would equal zero.
Q (a) A put and a call have the same maturity and strike price. If they have the same price, which one is in the money? Prove your answer and provide an intuitive explanation. (b) You find a put and a call with the same exercise price and maturity. What do you know about the relative prices of the put and call? Prove your answer and provide an intuitive explanation. Please explain step by step. I have seen other answers but still very confused.
Assume that F, and Fy are the futures prices of two contracts on the same non-dividend-paying investment asset, with times to maturity T, and Tz, Tz > T1. Prove that therelationship between the two prices must be see image

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