you have gone to work for Nike in the company\'s pension department.

INSTRUCTIONS TO CANDIDATES

ANSWER ALL QUESTIONS

Use Text Book: Financing International Trade by Gargi Sanati for 1-4:

1. Chapter 1 Section A (pages 17-18) Multi Choice Questions 1 to 10.

 

2. Chapter 3 Section A (Page 79) Multi choice Questions 1 to 10.

 

3. Chapter 4 (pages 92-93) Question 1, 10, 12 & 18.   

 

4. If Credit Suisse quotes you spot Swiss Francs at 1.4780-92 per US dollar, how much would it cost to purchase 4 million Swiss francs? 

 

 

5. Wong, a FX trader at Hong Kong & Shanghai Bank(HK), has $1 million to trade with and the following information: 

• current spot exchange rate is Yen106.00/$; 

• 180-day forward rate is Yen103.5/$; 

• Eurodollar rate is 8.00% per annum; 

• Euro Yen rate is 4.00% per annum. 

Is there a chance for Covered Interest Arbitrage? If yes, how much is the profit? 

 

6. You have gone to work for Nike in the company's pension department. One morning you walk in and the new Fund Manager asks, "How much would it cost us to hedge the rand? What's the forward discount, in percent per annum, on three-month South African rand? There's some kind of crisis down there, and we may have to hedge our South African bonds." Although you cannot find a quote for 3-month rand, you are able to get the following: Spot: 4.93 rand per dollar Eurodollar 3-month interest rate: 5.85% Euro Rand 3-month deposit rate: 12.77% What's the forward discount (estimated to the nearest basis point)? 

 

7. Assume China adopts a "currency board" at 8.3 Yuan for one US dollar. If its trade deficit doubles, what will likely happen to the exchange rate and the money stock in China? 

 

8. The Hong Kong dollar is fixed against the US dollar. If Hong Kong doubles its export surplus, what is likely to happen to the money stock in Hong Kong? 

 

9. Southwestern Bell needs to hedge a royalty payment from Mexico. If the dollar is trading at a spot price of 8.27 and the 6-month Eurodollar and Euro Peso rates are 7.57% and 20.16%, per annum, respectively, then what should the 6-month peso-dollar forward exchange rate be? (Calculate to two decimal points,like 8.25) 

 

10. In London a dealer quotes :

            GBP/CHF Spot 3.5250/55

            GBP/JPY Spot 180.80/181.30 

 

(a) What rate do you expect the CHF/JPY bid/ask spot to be in Geneva ?                           

(b) Suppose that in Geneva you get a quote of CHF/JPY Spot 51.1530/51.2550, is there an arbitrage  opportunity. Explain how?   

(c) Suppose you have JPY 1,000,000. Can you earn a profit, how and how much?         

 

11. A bank is quoting the following rates :

            USD/CHF Spot = 1.5975/ 80

            2-month : 20/10

            3-month : 25/15

 

            USD/SAR = 3.7550/ 60       (SAR= Saudi Riyal)

            2-month : 20/ 40

            3-month : 25/ 15

 

A firm wishes to buy Riyal against CHF forward 2.5 months. What will be the CHF/SAR bid/ask rate?

     

 

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