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