1. Suppose you work for Citicorp South Korea. A local bank wanted to buy USD50,000,000 one month forward. Since you think Korea is a risky environment you need to built 2% margin (monthly) in your forward price to account for risk. Current spot and one month interest rates in USD and Korean Won are as follows. What would be your forward quote?
Bid Offer
Spot rate, USD/KRW or KRW per $ 685 700
USD Interest Rate(per annum) 7.50% 8.50%
Korean Interest Rate(per annum) 35.00% 45.00%
736
722
913.5
none of the above
2. Use the following spot and interest rates to answer the following question:
Bid Offer
Spot rate, EUR/USD or USD per € 1.2310 1.2340
USD Interest Rate(per annum) 3.00% 3.25%
EU Interest Rate(per annum) 4.00% 4.50%
Assume that you are a banker who have access to the above rates. What EUR/USD rate or USD per € would you quote for an exporter who is interested hedging its EUR100m cash inflows due in three months?
1.2272
1.2242
1.2251
1.2264
3. A US importer, who incurs costs in Euros and bills its customers in USD, is concerned about the depreciation of USD against Euro due to EURO payables of 25,000,000 in a month. To hedge (protect himself/herself) the position, importer decides to use futures markets. Currently EUR contracts (125,000 EUR each) are traded at 1.3725. Spot rate is 1.3615 (i.e. 1.3615 USD per 1 EUR). Suppose the exporter takes an equal futures position to its cash market position (Euro 25m) at 1.3725. Assume that futures contract price and spot rates are 1.3755 and 1.3745 respectively when the hedge is liquidated. What should be the unit cost per EURO for the exporter in terms of USD?
1.3525
1.3945
1.3600
1.3715
4. Currently EURO contracts (125,000 EURO each) are traded at $0.8470. Spot rate is $0.8310 (i.e. 0.8310 $ per €). Assume that a speculator bought 80 Euro futures contract (or total of Euro 10,000,000). Suppose speculator liquidated the contract one month later, when the contract closed at $0.8600. If the initial margin for each Euro contract is $ 2,000, what is the annualized return to the speculator in this contract (NOTE:calculate simple annual return not compounded)? Hint: You need to calculate the return first. This is for 1 month. Then, you need to make it annual using the simple and not compounded formula.
81 %
9.75 %
975 %
54.5%
5. A U.S. company wants to use a currency put option to hedge 10 million French francs in accounts receivable. The premium of the currency put option with a strike price of $0.20 is $0.05.If the option is exercised, the total amount of dollars received after accounting for the premium payment is $____.
1,500,000
2,000,000
2,500,000
3,000,0000
6. A U.S. corporation has purchased currency call options to hedge a 70,000 pound payable. The premium is 2 cents per GBP and the exercise price of the option is 1.6500 (USD per 1 GBP). If the spot rate at the time of maturity is 1.7100 USD per GBP, what is the net profit the company gets from the option hedge?
$3,600.
$4,900
$2,800
$1,400
7. Assume that a EURO Call option trades at $0.05. The strike price of the option is $0.9200 and the current spot rate is $0.9203. A Euro forward contract that expires at the same time with the option is at $0.9195. Use this information to determine which one of the following is not a correct statement.
Time value of the option is $0.0497
US dollar interest rate is lower than Euro interest rate
Intrinsic value of the option is $0.03
The call option price is expected to increase if USD interest rate increases
8. ABC Inc. has CAD20,000,000 interest payment due on September 19th and is concerned about a possible CAD appreciation. The premium for September 19th call option on Canadian dollar is $0.04, and the strike price is $0.80. Assume that on September 19 the spot rate for the Canadian dollar rose to $0.92. What is the USD cost of interest payment for ABC Inc. ?
20,000,000
16,800,000
15,400,000
12,000,000