For a U.S. trader working in American quotes, if the forward price is higher than the spot price: O a. The currency is trading at a premium in the forward market. O b. The currency is trading at a discount in the forward market. O. Then you should buy at the spot, hold on to it and sell at the forward-its a built-in arbitrage. O . All of the above-it really depends if you're talking American or European quotes.

For a U.S. trader working in American quotes, if the forward price is higher than the spot price: O a. The currency is trading at a premium in the forward market. O b. The currency is trading at a discount in the forward market. O. Then you should buy at the spot, hold on to it and sell at the forward-its a built-in arbitrage. O . All of the above-it really depends if you're talking American or European quotes.

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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PQ 3 In which of the following relationships between the expected future spot rate (E(e)) of a foreign currency and the current forward rate (e fwd) of a foreign currency would a speculator have an incentive to sell foreign currency in the forward market? a. E (e) = e fwd bb. E(e) greater than e fwd c. E(e) less than e fwd d. E (e) = (1/d fwd)
Which of the following statements are true about exchange rate risk? Check all that apply: A Canadian investor with an investment in U.S Treasury bills faces exchange rate risk. Exchange rate risk arises from the uncertainty in asset returns due to changes in the exchange rate between the currency of the investor and the foreign currency. Exchange rate risk can't be perfectly hedged, even if the return earned in the foreign currency is known beforehand. Exchange rate risk can be hedged using a futures or forward contract in foreign exchange. Submit
You are a proprietary trader under the FX Group of BDO Treasury Department. Due to the political and economic uncertainties that is happening in the Euro zone and the improving economic conditions in the US, you are bearish on the EUR and bullish on the USD. Given this view, you want to short the EUR and take a net FX position of EUR 100MM. At what rate can you establish your position, assuming the market rate prevails at EUR/USD: 1.3223-1.3227 1.3227 Do not enter the transaction because of the political and economic uncertainties in the Eurozone. 1.3223 Based on the above position/view, w/c of the following outcomes, 1 week from now, will yield you FX gains? Scenario A: at EUR/USD 1.3245 – 1.3249 Scenario B: at EUR/USD 1.3230 – 1.3234 Scenario C: at EUR/USD 1.3216 – 1.3220 How many pips will you make assuming you bought the EUR back and that the desired scenario happens? 11 pips 7 pips 3 pips What is your profit is USD? $110,000.00 $80,000.00 $30,000.00
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".
OMR is quoted against USD and EURO. Under which of the following condition will the trader have a possibility of arbitrage? a. When the calculated cross rate of USD/EURO is different from Quoted cross rate b. When calculated cross rate of OMR/EUR is different from Quoted cross rate c. When calculated cross rate of OMR/USD is greater than quoted rate d. When calculated cross rate of USD/EUR is equal to Quoted cross rate Which of the following is true about derivatives? a. Value of derivative is derived from predetermined asset b. The terms and conditions are flexible under derivative trading c. Derivative markets are suitable for low risk investors d. Risk on derivatives market are always low Which of the following condition may indicate that OMR has depreciated to EUR? a. Spot rate of EUR/OMR is equal to future rate of OMR/EUR b. Spot rate of EUR/OMR is less than future rate of EUR/OMR c. None d. Future rate of EUR/OMR is equal to spot rate…
Which of the following is/are TRUE with respect to spot market liquidity? I. The market liquidity improves if more buyers and sellers willing to participate in the currency trading. II. The spot markets for heavily traded currencies such as the Euro and Pound are very liquid. III. A currency's liquidity affects the ease with which an MNC can obtain or sell that currency. IV. If a currency is illiquid, an MNC is typically able to quickly purchase that currency at a reasonable exchange rate. A. I, II, III B. I, III, IV C. II, III, IV D. I, II
True/false : International Financial Management: 1. Forward contracts are often valued at £1 million or more, and are not normally used by consumers or small firms. (a) True (b) False 2. Governments may influences the equilibrium exchange rate by affecting macro variables such as inflation, interest rates, and income levels. (a) True (b) False 3. A forward contract is an agreement to buy or sell an asset in the future at prices agreed upon today. (a)True (b) False
a)explain how to price a currency swap if either set of payments is at a floating rate. b)explain how a currency swap can be used to convert a loan in one currency into a loan in another currency, and provide some reasons for doing so. c)demonstrate that a currency swap contract is equivalent to a series of forward contracts. d)explain how a currency swap can be used to hedge a stream of foreign cash flows. e)define interest rate derivatives, and compare and contrast them against bond derivatives.
A firm that has a sum of money denominated in a foreign currency that plans to later convert it to dollars could hedge by which of the following methods. Explain why A. a call on the foreign currency B. a long futures or forward on the foreign currency C. a short put on the foreign currency futures D. all of the above E. none of the above
When a European put is priced higher than its upper bound, you can arbitrage by devising a trading strategy that consists of ___________ a) Writing the European call b) Writing the corresponding European call and investing the proceeds at a risk‐free interest rate c) Writing the European put and investing the proceeds at a risk‐free interest rate d) Holding the European put and borrowing at a risk‐free interest rate
Assume you can exchange $1 for either £1.0 or €0.50 in the U.S. In the London market, you can exchange £1 for €0.52. This situation creates an opportunity to profit immediately from which one of the following? A. Futures arbitrage B. Currency hedge C. Interest rate swap D. Absolute purchasing power parity E. Triangle arbitrage
Which of the following statements about the foreign exchange market is NOT true? The client market, also referred to as the retail market, is a segment of the FX market. FX brokers match buy and sell orders and carry a large inventory of foreign exchange. Nonbank dealers represent approximately 40% of the market. About 100-200 banks worldwide are prepared to make a market in foreign exchange.

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