problem 1:

Describe and discuss why and how government intervenes in foreign exchange market.

problem 2:

‘Changes in equilibrium exchange rate between a pair of currencies rely on changes in the rates of inflation and growth in the two countries’. Critically comment on and describe this statement hypothesis. What is the role of speculation in above?

problem 3:

Using descriptive exs make between an interest and a currency swap. What are the risks associated with interest and currency swaps?

problem 4:

‘Transaction exposure in context of foreign exchange can equally be managed externally by a forward hedge or internally by a money market hedge’. Describe how these two hedging strategies differ and evaluate of both techniques.

problem 5:

Discuss and illustrate out briefly the implications of hedging through futures market.

problem 6:

Make a distinction between a call and a put option? Discuss their rationales.

problem 7:

prepare down and describe the Black-Scholes European call option pricing formula. Discuss how the formula delivers change with each of the inputs to the calculation.

problem 8:

What is price of a European call option on a non-dividend paying stock when the stock price is $60, the strike price is $55 and the risk-free rate is 10% per annum, the volatility is 25% per annum and the time to maturity is 6 months?

problem 9:

Make a distinction between a Straddle and a Strangle using descriptive exs.