Ask Financial Management Expert

Please Answer All problems:

problem1.  Graylon, Inc., based in the Washington, exports products to a German firm and will get payment of €200,000 in three months. On June 1, the spot rate of a euro was $1.12, and the 3-month forward rate was $1.10. On June 1, Graylon negotiated a forward contract with bank to sell €200,000 forward in three months. The spot rate of the euro on September 1 is $1.15. Graylon will get $____ for the euros.

a. 224,000

b. 220,000

c. 200,000

d. 230,000

problem2. The 90-day forward rate for the euro is $1.07, while the present spot rate of the euro is $1.05. What is an annualized forward discount or premium of euro?

a. 1.9 percent discount.

b. 1.9 percent premium.

c. 7.6 percent premium.

d. 7.6 percent discount.

problem3.a. If your firm thinks the euro to substantially depreciate, it could guess by ____ euro call options or ____ euros forward in the forward exchange market.

a. selling; selling

b selling; purchasing

c. purchasing; purchasing

d. purchasing; selling

problem3.b.  The greater the variability of a currency, the ____ will be premium of a call option on this currency, and the ____ will be the premium of a put option on this currency, other things equivalent.

a. greater; lower

b. greater; greater

c. lower; greater

d. lower; lower

problem4. Suppose that a speculator purchases a put option on the British pounds (with a strike price of $1.50) for $.05 per unit. A pound option represents 31,250 units. suppose that at the time of purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. The highest net profit probable for the speculator based on the detail above is:

a. $1,562.50.

b. $1,562.50.

c. $1,250.00.

d. $625.00.

problem5. A firm desires to use an option to hedge 12.5 million in receivables from New Zealand firms. The premium is $.03. The exercise price is $.55. If the option is exercised, what is the sum amount of dollars received (after accounting for the premium paid)?

a. $6,875,000.

b. $7,250,000.

c. $7,000,000.

d. $6,500,000.

e. none of the above

problem6. The premium on a pound put option is $.03 per unit. The exercise price is $1.60. The break-even point is ____ for buyer of the put, and ____ for the seller of the put. (Assume zero transactions costs and which the buyer and seller of the put option are speculators.)

a. $1.63; $1.63

b. $1.63; $1.60

c. $1.63; $1.57

d. $1.57; $1.63

e. none of the above

problem7. The existing spot rate of the Canadian dollar is $.82. The premium on a Canadian dollar call option is    $.04. The exercise price is $.81. The option will be exercised on expiration date if at all. If the spot rate on expiration date is $.87, the profit as a percent of initial investment (the premium paid) is:

a. 0 percent.

b. 25 percent.

c. 50 percent.

d. 150 percent.

e. none of the above

problem9. Suppose the bid rate of a New Zealand dollar is $.33 while the ask rate is $.335 at Bank X. suppose bid rate of the New Zealand dollar is $.32 while the ask rate is $.325 at Bank Y. Given this detail, what would be your gain if you use $1,000,000 and implement locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?

a. $15,385.

b. $15,625.

c. $22,136.

d. $31,250.

problem10. Suppose the following information:

You have $1,000,000 to invest:

Current spot rate of pound =             $1.30

90-day forward rate of pound =         $1.28

3-month deposit rate in U.S. =             3%

3-month deposit rate in Great Britain =   4%

problem11. If you employ covered interest arbitrage for a 90-day investment, what will be the amount of the U.S. dollars you will have subsequent to 90 days?

a. $1,024,000.

b. $1,030,000.

c. $1,040,000.

d. $1,034,000.

e. none of the above

problem12. Suppose the bid rate of a Singapore dollar is $.40 while the ask rate is $.41 at Bank X. suppose the bid rate of a Singapore dollar is $.42 while the ask rate is $.425 at Bank Z. Given this detail, what would be your gain if you employ $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with?

a. $11,764.

b. $11,964.

c. $36,585.

d. $24,390.

e. $18,219.

problem13. Suppose the following information:

Spot rate today of Swiss franc =                                      $.60

1-year forward rate as of today for Swiss franc =                $.63

Expected spot rate 1 year from now =                               $.64

Rate on 1-year deposits denominated in Swiss francs =          7%

Rate on 1-year deposits denominated in U.S. dollars =            9%

problem14. From the perspective of U.S. investors with $1,000,000, covered interest arbitrage would yield a rate of return of ____%.

a. 5.00

b. 12.35

c. 15.50

d. 14.13

e. 11.22

problem15. Suppose the subsequent information:

You have $1,000,000 to invest:

Current spot rate of pound =                 $1.60

90-day forward rate of pound =             $1.57

3-month deposit rate in U.S. =                3%

3-month deposit rate in U.K. =                4%

problem16. If you employ covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have subsequent to 90 days?

a. $1,020,500.

b. $1,045,600.

c. $1,073,330.

d. $1,094,230.

e. $1,116,250.

problem17.  National Bank quotes the subsequent for the British pound and New Zealand dollar: 

                                              Quoted Bid Price              Quoted Ask Price

Value of a British pound (£) in $             $1.61                     $1.62

Value of a New Zealand dollar (NZ$) in $   $.55                      $.56

Value of a British pound in                          

   New Zealand dollars                           NZ$2.95               NZ$2.96

problem18.  Suppose you have $10,000 to conduct triangular arbitrage. What is your profit from executing this policy?

a. $77.64.

b. $197.53.

c. $15.43.

d. $111.80.

problem19.  Suppose the following information:

Exchange rate of Japanese yen in U.S. $ =                  $.011

Exchange rate of euro in U.S. $ =                              $1.40

Exchange rate of euro in Japanese yen =                  140 yen

problem20. What will be the yield (i.e., percentage return) for an investor who has $1,000,000 accessible to conduct triangular arbitrage?

a. $100,000

b. $90,909

c. 10%

d. 9.09%

problem21. Suppose the following information:

                                                      Quoted Bid Price     Quoted Ask Price

Value of an Australian dollar (A$) in $            $0.67                $0.69

Value of Mexican peso in $                          $.074                 $.077

Value of an Australian dollar in                  

   Mexican pesos                                         8.2                    8.5

problem22. Suppose you have $100,000 to conduct triangular arbitrage. What will be your profit from implementing this strategy?

a. $6,133

b. $2,368

c. $6,518

d. $13,711

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M9759

Have any Question?


Related Questions in Financial Management

Assignment problems1 on the day harry was born his parents

Assignment Problems 1. On the day Harry was born, his parents put $1600 into an investment account that promises to pay a fixed interest rate of 5 percent per year. How much money will Harry have in this account when he ...

1 activities of a company that require the spending of cash

1) Activities of a company that require the spending of cash are known as: A) Uses of cash. B) Cash on hand. C) Cash receipts. D) Sources of cash. E) Cash collections. 2) Relationships determined from a firm's financial ...

Module discussion forumto prepare for this discussion

Module : Discussion Forum To prepare for this discussion, review "Basics of Speechwriting" and "Basics of Giving a Speech" in textbook Chapter 15. Then watch this video of Apple founder and CEO Steve Jobs giving the 2005 ...

Launching a new product linefor this portfolio project

Launching a New Product Line For this Portfolio Project Option, you will act as an employee in a large company that develops and distributes men's and women's personal care products. The company has developed a new produ ...

Question 1 discuss valuing bonds and how interest rates

Question : 1) Discuss valuing bonds and how interest rates affect their value. Also consider the importance of the yield-to-maturity (YTM). 2) Discuss common stocks and preferred stocks. Also, which common stock valuatio ...

Introductionlast week you determined the root causes of the

Introduction Last week, you determined the root cause(s) of the problem you are trying to resolve for your final paper. As a reminder, the decision you are working on is the one that you selected in week two. This week, ...

You have owned and operated a successful brick-and-mortar

You have owned and operated a successful brick-and-mortar business for several years. Due to increased competition from other retailers, you have decided to expand your operations to sell your products via the Internet. ...

You will be conducting an interview with a market research

You will be conducting an interview with a market research professional or a company representative. Use the results of your research to make specific recommendations on how market research can be applied to the Marketpl ...

Question 1 what is marketing research what are the two

Question 1: What is marketing research? What are the two primary types of research? Question 2: What factors influence marketing research? Question 3: The role of statistics in business decision-making? Assignment : Sele ...

Chapter 74 for commercial banks what is meant by a managed

Chapter 7 4. For commercial banks, what is meant by a managed liability? What role do liquid assets play on the balance sheet of commercial banks? What role do money market instruments play in the asset and liability man ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As