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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Which of the following refers to exposure netting? 1. It is a strategy based on adjustments of the times of payments that are made in foreign currencies. 2. It is a practice which implies using swap contracts that have a fixed currency exchange rate. 3. It is a method of hedging transaction risk by offsetting exposure in one currency with exposure in the same or another similar currency. 4. It is a strategy that involves using two distinct assets with positively correlated price movements where the investor takes opposing positions in each investment in an attempt to reduce the risk of holding just one of the securities.
The is an over-the-counter market with participants (buyers and sellers) located in major commercial and investment banks around the world. OÀ. purchasing power parity O B. exchange rate parity OC. interest rate market O D. foreign exchange market
Suppose the Japanese yen exchange rate is ¥116/$ and the British pond exchange rate is $1.27/£. a) What is the yen to pound cross-rate? b) Suppose that a bank gives you a quote of ¥156/£. Is there an arbitrage opportunity here? If so, explain how to take advantage of the mispricing.
1. Assume the following exchange rates for the New Zealand dollar in terms of the US dollar: North Bank: Bid price = $.401 Ask price = S.404 South Bank: Bid price = $.398 Ask price = S.400 a. Explain the steps involved in locational arbitrage using $1 million. b. What would be your profit?
Given the interest rates in the U.S. and Canada are similar, if the Canadian dollar is expected to appreciate against the U.S. dollar, banks are most likely speculating on this anticipated exchange rate movement by borrowing ____ and investing in ____. A. dollars; Canadian dollar B. Canadian dollar; dollars C. Canadian dollar; Canadian dollar D. dollars; dollars
An example of transaction exposure is when Question 4 options: companies have obligations for the purchase of goods at previously agreed prices. companies borrow funds in domestic currency. there is an impact of currency exchange rate changes on the reported financial statements of a company. there is a long-term effect of changes in exchange rates. changing exchange rates persists on future prices, sales, and costs
What is a mismatch risk (for an IRS)? a. The major risk faced by a swap dealer-the risk that a counter party will default on its end of the swaps. b. The risk that a country will impose exchange rate restrictions that will interfere with performance on the swaps c. Interest rates might move against the swap bank after it has only gotten half of a swap on the books, or if it has an unhedged position d. The risk that it will be difficult to find counterpart that wants to borrow the right amount of money for the right amount of time
Which of the following statement is incorrect? O Currency crisis is more likely happen under the fixed exchange rate system. O Capital flight is more likely occur under the fixed exchange rate system. Fixed exchange rate regime relied on the ability of central banks to intervene in the currency market. O China is taking free floating exchange rate system.
What is the relationship or link between the forward rate and the foreign currency option premium? An option's value declines over time, but it does not do it evenly. Explain what that means for option valuation? Classify the following as a transaction reported in a sub-component of the current account or the capital and financial accounts of the two countries involved: An American tourist pays for a hotel in Paris with his American Express card.
Consider the following table. There are two countries and two goods. Assume both countries have the same price table: Time t t+1 P1 $8 $10 P2 $4 $5 a. Assume commodity price parity. What is the foreign currency price of the two goods at the two points in time? What is the domestic inflation rate? What is the foreign inflation rate. b. Suppose PPP is known to hold as is covered interest parity between two countries. What determines any differences between the expected real returns on risk free interest bearing assets in the two countries?
Exchange rates can move up or down, and spot rates could move favourably as well as adversely. However, many companies prefer to hedge their currency risks by fixing an exchange rate now for a future transaction, even if this means that it will not be able to benefit from any favourable future movement in the exchange rate. Required Discuss the methods of hedging exposures to foreign exchange risk.
Please quickly and with neat explanation.

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