I. LOCAL CURRENCY MECHANICS (33.33%)

EM Currency Spot Rate 5X = US$1

1 Year EM Government Local Currency Interest Rate = 14%  

1 Year US Government $ Interest Rate = 4%  

* What is the standard theoretical forward rate assuming no country risk premium?

* If the country's credit risk premium is 300 bps. (3.00%) above US Treasuries, what would would be a break-even 1-year forward exchange rate against the US dollar?

* Assume you convert $100 into 500X on day 1 and invest for one year at 14%. What is your dollar rate of return if the ending EM FX rate is 5.5X = US$1?

* Assuming a spot rate of 5X, note the EM country has a 20% currency band policy from the spot rate for one year (meaning the FX rate could rise to a max of 6X or fall to low of 4X against the US dollar). What is the best US dollar rate of return we could assume if we invest for one year at 14%, and the worst?

II. ADR CONCEPTS AND MECHANICS (33.33%)

* Metalastan Telecom (MT) ADRs trade on the NYSE. 10 local MT shares equals 1 MT ADR.

* Local shares are trading at a price of 50 local Metalos, and the current Metalo FX rate per US dollar is currently 5:1 in the spot market.

1. If you own 10 US ADRs of MT, how many local shares does this equal?

2. What would these shares be worth in local currency? What should the US ADR price be?

3. Assume that the local MT share prices stay at 50, but the Metalo FX rate rises to 6 per US dollar. At what price should one MT ADR trade?

III. COUNTRY FUND CONCEPTS AND MECHANICS (33.34%)

* The Metalastan Fund (MF) is a closed-end fund that trades on the NYSE

* MF has 10 million shares outstanding, and the stock trades at $18 per share. What is the market capitalization of MF based on the $18 stock price?

* The MF stock now trades at $20 per share, and the value of all its stock holdings based on local prices is $144 million. What is the Net Asset Value (NAV) per share based on this $144 million value? At $20 per share, is the MF stock trading at a discount or premium to NAV? By how much?

* If the MF stock price now trades at $15 per share, but the underlying NAV in the MF portfolio has risen to $161 million in total, is the stock trading at a discount or premium? By how much?