Question 1 : A U.S. corporation has purchased currency call options to hedge a 70,000 pound payable. The premium is $.02 and the exercise price of the option is $.50. If the spot rate at the time of maturity is $.65, what is the total amount paid by the corporation if it acts rationally? 

$33,600. 

46,900 

36,400 

44,100 

Question 2 : 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 

Question 3 : ABC Inc. borrows 100m JPY when JPY spot rate is JPY120/$. The JPY interest rate for the loan is 3%. One year later when ABC pays back the JPY principal and interest, the exchange rate is JPY 95/$. What is the dollar cost of ABC''''s JPY loan? 

3% 

30.1% 

-18.46% 

None of the above 

Question 4 : A US exporter is concerned about the depreciation of Euro against USD due to Euro receivables of EUR10,000,000 in three months. To hedge (protect himself/herself) the position, exporter decides to use futures markets. Currently CME (Chicago Mercantile Exchange) EURO contracts (125,000 each) are traded at USD1.2814. Spot rate is EUR/USD1.2751-2756 (USDs per EURO). Suppose the exporter takes an equal futures position to its cash market position (EUR10m) at $1.2814. Provided that futures contract price and spot rates are $1.2850/Euro and $1.2935/Euro respectively when the hedge is liquidated, what should be the unit receipt per EURO for the US-exporter in USD terms. 

1.2899 

1.2971 

1.2814 

1.2935 

Question 5 : 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? 

USD/KRW 685-700 
Rusd: 7.50-8.50 p.a. (these interest rates are annualized) 
Rkrw:35.00-45.00% p.a. (these interest rates are annualized) 

a. 736 
b. 722 
c. 913.5 
d. none of the above 

736 

722 

913.5 

none of the above 

Question 6 : A Japanese exporter to Brazil would like to sell its BRL300m receivables in the spot market against Yen. The exporter's CFO calls the trading desk at Banco Itau to ask for a quote. The trader on the other line sees the following spot rates on its screen. (10pts) Currency Bid Rate Offer Rate EUR/USD 1.2310 1.2313 GBP/USD 1.7945 1.7949 USD/JPY 90.73 90.83 USD/CHF 1.2810 1.2815 USD/CAD 1.1514 1.1517 USD/BRL 1.8180 1.8215 What rate should the trader quote to the CFO? 

49.55 

49.60 

49.81 

49.96 

Question 7 : A US exporter is concerned about the depreciation of JPY against USD due to JPY receivables of JPY400,000,000 on February 1st ( in 167 days). To hedge (protect himself/herself) the position, exporter decides to use futures markets. Currently CME (Chicago Mercantile Exchange) JPY contracts (12,500,000 each) with closest maturity are traded at USD0.8350 per 100 JPY. Futures contract expires 18 days after on February 19th. . Suppose the exporter takes a futures position equal to 50% of its cash position (JPY200m) at USD0.8350. Also Company treasurer buys an over the counter put option for the JPY150m portion of the expected cash inflow at a strike price of JPY120, at 2% (2% is the cost of premium) and leaves JPY50m portion of the exposure uncovered. At the time the option was purchased, the spot rate was JPY117. On February 1st, Futures contract price is USD0.8130 per 100 JPY and the JPY/USD spot price is 122. Calculate the effective amount of USD company will clear on February 1st. What is the effective JPY cost of acquiring one USD? 

4,321,477 

5,236,477 

3,317,539 

None of the above 


Question 8 : Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German firm, for 1,250,000. The sale was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in Euros rather than dollars, Plains States is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information. 

· The spot exchange rate is $1.1740/ 
· The six month forward rate is $1.1480/ 
· Plains States'''' cost of capital is 12% per annum 
· The Euro zone 6-month borrowing rate is 7% per annum (or 3.5% for 6 months) 
· The Euro zone 6-month lending rate is 5% per annum (or 2.5% for 6 months) 
· The U.S. 6-month borrowing rate is 6% per annum (or 3% for 6 months) 
· The U.S. 6-month lending rate is 4.5% per annum (or 2.25% for 6 months) 
· December put options for 625,000; strike price $1.18, premium price is 1.5% 
· Plains States'''' forecast for 6-month spot rates is $1.19/ 
· The budget rate, or the lowest acceptable sales price for this project, is $1,425,000 or $1.14/ 


Plains States could hedge the Euro receivables in the money market. Using the information provided how much would the money market hedge return in six months assuming Plains States reinvests the proceeds at the U.S. investment rate? 

$1,449,777 

$1,502,947 

$1,250,000 

$1,460,411 

Question 9 : Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German firm, for 1,250,000. The sale was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in Euros rather than dollars, Plains States is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information. 

· The spot exchange rate is $1.1740/ 
· The six month forward rate is $1.1480/ 
· Plains States'''' cost of capital is 12% per annum 
· The Euro zone 6-month borrowing rate is 7% per annum (or 3.5% for 6 months) 
· The Euro zone 6-month lending rate is 5% per annum (or 2.5% for 6 months) 
· The U.S. 6-month borrowing rate is 6% per annum (or 3% for 6 months) 
· The U.S. 6-month lending rate is 4.5% per annum (or 2.25% for 6 months) 
· December put options for 625,000; strike price $1.18, premium price is 1.5% 
· Plains States'''' forecast for 6-month spot rates is $1.19/ 
· The budget rate, or the lowest acceptable sales price for this project, is $1,425,000 or $1.14/ 


If Plains States locks in the forward hedge at $1.1480/ , and the spot rate when the transaction was recorded on the books was $1.174/ , this will result in a "foreign exchange loss" accounting transaction of ________. 

There is not enough information to answer this question. 

$0 

$32,500 

This was not a loss; it was a gain of $32,500. 

Question 10 
A US importer is concerned about the appreciation of JPY against USD due to JPY payable of JPY400,000,000 on February 1st ( in 167 days). To hedge (protect himself/herself) the position, importer decides to use futures markets. Currently CME (Chicago Mercantile Exchange) JPY contracts (12,500,000 each) with closest maturity are traded at USD0.8350 per 100 JPY. Futures contract expires 18 days after on February 19th. . Suppose the importer takes a futures position equal to 50% of its cash position (JPY200m) at USD0.8350. Also Company treasurer buys an over the counter call option on JPY150m portion of the expected cash inflow at a strike price of USD0.8333 per 100 JPY, at a premium of 2% (2% is the cost of premium) and leaves JPY50m portion of the exposure uncovered. At the time the option was purchased, the spot rate was JPY117. On February 1st, Futures contract price is USD0.8130 per 100 JPY and the JPY/USD spot price is 122. Calculate the effective cost of acquiring 100 JPY for the importer? (Ignore the time value of the option premium) 

$0.9125 

$0.8998 

$0.8371 

None of the above 

Question 11 : A US importer, who incurs costs in Euro''''s and bills its customers in USD, is concerned about the depreciation of USD against Euro due to EURO payables of 10,000,000 in a month. To hedge (protect himself/herself) the position, importer decides to use futures markets. Currently EURO contracts (125,000 EURO each) are traded at $0.8470. Spot rate is $0.8310 (ie EUR/USD 0.8310). Suppose the exporter takes an equal futures position to its cash market position (Euro10m) at $0.8470. Assume that futures contract price and spot rates are $0.8600, $0.8540 respectively when the hedge is liquidated. What should be the unit cost of EURO for the exporter in terms of USD? 

0.8600 

0.8540 

0.8670 

0.8410 

Question 12 
Currently EURO contracts (125,000 EURO each) are traded at $0.8470. Spot rate is $0.8310 (ie EUR/USD 0.8310). Assume that a speculator bought 80 Euro futures contract (Euro10,000,000). Suppose speculator liquidated the contract one month later, when the contract closed at $0.8600. If the initial margin for each Euro contract is USD2,000, what is the annualized return to the speculator in this contract (NOTE:calculate simple annual return not compounded)? 

%81 

%9.75 

%975 

None of the above 




Question 13 
Use the following spot and interest rates to answer the following questions: 

EURO/USD 1.0751-1.0805 
R-USD-3-months: 1.41%-1.45% pa 
R-EUR-3-months 2.64-2.67% pa 

If the dealer has 0.1% profit policy what should be his/her three months forward bid and offer quotes? 

1.0717-1.0773 

1.0610-1.0881 

1.0706-1.0784 

None of the above 

Question 14 
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 

Question 15 
Use the following spot and interest rates to answer the following question: EUR/USD 1.3378 1.3399 R-USD-3-months: 1.5% 1.75% pa R-EUR-3-months 2.5% 3.00% pa If the dealer has 0.1% profit policy, what rate he/she would quote to a client who wants to buy USD 3 months forward? (10pts) 

1.3183 

1.3170 

1.3328 

1.3315 

Question 16 
Suppose you work for XYZ Bank. A customer who wants to buy GBP 6-months forward approached you. What is the forward rate that you would quote if your bank requires 1% flat profit over the breakeven rate? (You can round your results to third decimal and mark the closest answer) 

GBP/USD 1.6500-1.6580 
RUSD: 5.50-6.50% pa 
RGBP:9.00-10.00%pa 

1.6382 

1.5866 

1.6545 

1.6020 
Question 17 
A US importer is concerned about the appreciation of Euro against USD due to Euro payables of EUR10,000,000 in three months. To hedge (protect himself/herself) the position, exporter decides to use futures markets. Currently CME (Chicago Mercantile Exchange) EURO contracts (125,000 each) are traded at USD1.0814. Spot rate is EUR/USD1.0751-0756 (USDs per EURO). Suppose the exporter takes an equal futures position to its cash market position (EUR10m) at $1.0814. Provided that futures contract price and spot rates are $1.1250/Euro and $1.0935/Euro respectively when the hedge is liquidated, what should be the unit cost of EURO for the USimporter in USD terms. 

1.0499 

1.0935 

1.0436 

None of the above 

Question 18 
Use the following spot and interest rates to answer the following question: 
EUR/USD1.2310-1.2340 
R-USD-3-months: 3.00%-3.25% pa 
R-EUR-3-months: 4.00%-4.50% pa 
Assume that you are a banker who have access to the above rates. What EUR/USD rate 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 

Question 19 
A US importer is concerned about the appreciation of EUR against USD due to EUR payables of EUR100,000,000 in three months. To hedge the position, importer decides to use futures markets. Currently CME (Chicago Mercantile Exchange) EUR contracts (125,000 each) with closest maturity are traded at USD1.3500 per EUR. Futures contract will expire one week after the due date of payables. Suppose the importer takes a futures position equal to 50% of its cash position at USD1.3500. Also Company treasurer buys an OTC (over the counter) call option on EUR for EUR40,000,000 notional with a strike price of EUR/USD 1.3500 at 2% premium and leaves EUR10,000,000 portion of the exposure uncovered. At the time the option is purchased, the spot rate was USD1.3778. On the day the Futures contract is liquidated, Futures price is 1.3100 per EUR and the EUR/USD spot rate is 1.3150. Calculate the effective amount of USD the company will pay for its 100m EUR payable? Assume that importer's cost of capital is 10%. [Round your numbers into integers] 

USD 138,659,232 

USD 131,500,000 

USD 132,635,078 

134,629,796 



Question 20 
A Brazilian investor buys 1,000 Qualcom shares on January 1st 2008 at $20 per share. The investor liquidates her position on January 1st, 2009 at $35. During the same period USD/BRL rate moved from 2.62 to 2.19. Calculate the returns of the Brazilian investor from her Qualcom investment in Brazilian real terms? 

109.36 

-12.87% 

-22.44% 

46.28%