Managing Global Financial And Foreign Exchange Rate Risk 1st Edition Ghassem A. Homaifar - Solutions

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What are the main lessons from the the savings and loan crisis?
What are the ingredients that enable some countries to remain financial centres for centuries, while other countries do not seem to manage it?
Do you think financial liberalisation is a recommended course of action for a country aiming to stimulate economic growth?
Banking crisis are frequent and well understood. We know why they happen, the best way to deal with them and we have a good understanding of how to prevent them.Why then are they so frequent?
What are the main causes of banking crises?
7?
Are there parallels between the Asian crisis and the crisis dating from
Is the IMF a suitable provider of liquidity, or even a LOLR?
What was the role of the IMF? Did it give necessary help and support to the countries concerned or did it make matters worse?
Later analysis, especially in the countries affected, focuses on liquidity. Explain the basis of the argument; discuss why it might be correct and what might be missing.
Initial explanations for the crisis focused on moral hazard and related issues. These were eventually dismissed as a main cause. Why?
Some commentators have argued that panic and contagion played an important role in the crisis. What is your view on this analysis?
Compare and contrast the causes of the crisis, the resolution of the crisis and the postcrisis reactions across the three countries.
What does it mean when we say that the economic fundamentals were sound but not the financial fundamentals?
How does the Asian crisis differ from the previous major regional crisis, in Latin America?
What are the main arguments against central bank independence?
What are the main arguments for central bank independence?
How can a central bank bail out its government? Why is it harder for the ECB to fulfil this function than central banks in other countries?
What are some of the unique challenges facing the ECB?
Who are the main losers from quantitative easing?
What is the long-term danger of quantitative easing?
Why is quantitative easing discussed more widely today than in the past?
What is quantitative easing, and how does it compare to more conventional monetary policy operations?
Should the central bank be in charge of supervision?
What is the danger of deflation, and what policy remedies for it do you recommend?
How have the common views of the relative importance of financial stability versus monetary policy changed over time?
What is more important as a central bank function: financial stability or monetary policy?
What are the main functions of a central bank?
How can the supply and demand for an asset move its price away from the fundamental price?
Describe a mechanism whereby margins and fire selling viciously interact with each other, creating a crisis.
What is a limit order book, and how can we think about liquidity from the point of view of limit order books?
Compare and contrast the two notions of liquidity proposed by the Basel committee.
Explain what it means when we say that ‘liquidity is priced’.
Why is it so difficult to formally conceptualise the notion of liquidity?
.1% of the amount the fund trades. How does it react to the price increase?
Suppose a hedge fund operates with four times leverage (assets over equity), where its equity is worth $10 and the current price of the asset it holds is $5.(a) Suppose the fund is currently meeting its leverage constraint. How many units of the asset does it told?(b) Suppose the price of the asset
To what extent is the sovereign debt crisis an endogenous risk story, and to what extent is it not?
7 be explained by the notion of endogenous risk?
To what extent can crisis events from
Discuss financial bubbles, considering both prices and risk, from the point of view of endogenous and exogenous risk, using the terminology of actual and perceived risk.
It has been said that financial risk models are least reliable when needed the most.Do you agree?
0:‘The received wisdom is that risk increases in recessions and falls in booms. In contrast, it may be more helpful to think of risk as increasing during upswings, as financial imbalances build up, and materialising in recessions.’How does his view on risk relate to endogenous risk, and what is
The former general manager of the BIS, Andrew Crockett stated in
Define the terms endogenous and exogenous risk, and provide examples of each.
What is the main lesson from the Great Depression that has not been applied in the European sovereign debt crisis? Why do you think that is the case?
8?
What are the main lessons of the Depression that policymakers seem to have learned when fighting the crisis in
Explain the role of monetary policy in the US as contributor to the Depression.
What role did tariffs play in worsening the Great Depression, and how has the memory of those events shaped current policy debate?
0s, and how has the memory of those events shaped current policy debate?
What was the impact of competitive devaluations in the
4 at prewar parity was his biggest mistake? What were the implications of this decision of his?
Winston Churchill is said to have stated that going on gold in
7?
The Great Depression is the most severe global economic crisis we have ever seen. In what way was it more damaging than the ongoing crisis in
What are the main origins of systemic risk?
Do you think Europe is at the risk of a systemic event at the moment?
Explain the concept of firesale externality.
What is pro-cyclicality, how is it amplified, and how could it be mitigated?
7?
Can you think of some systemic events in the past, anywhere in the world, excluding what has been happening since
Do you think it would be prudent for the British government to reduce the size of its banks in order to reduce systemic risk?
How does the European country with the largest banking system relative to GDP manage to be mostly unaffected by the banking crisis whilst other countries with relatively smaller banking system suffer serious banking crises?
What does it mean when we say that systemic risk builds up out of sight, and what could that mean for the government’s formulation of financial stability policies?
How frequently can we expect systemic crises?
What is systemic risk?
What is TRANSFER AND CONVERTIBILITY PROTECTION
Exhibit 11.11 shows the yield spread between various issues of Argentina bonds and their U.S. Treasury counterparts. The credit spread appears to be smaller than the credit default swap of the nearly same maturity. For example,the credit spread between two sovereign bonds on February 2001 with a
The protection seller on the XYZ default swap that is quoted at 55/65 basis points as of October 8, 1999, in Exhibit 11.7 at the bid-offer on the notional principal of, say, $25 million will receive $137,500 assuming annual reset.The underlying debt is XYZ’s 10-year 7.125 percent note due 2010.
It is January 14 and Enterprise USA has 35 million payables in Norwegian kron in 96 days. The treasurer is concerned about appreciation of the kron. Buying an ordinary call can mitigate the firm’s exposure to foreign exchange risk. However, buying down-and-out call options will be less expensive,
Bank B has $200 million variable rate loan in its assets portfolio; the rate is to be reset in the next three months. The revenue is exposed to interest rate risk. Bank B wishes to manage its exposure by selling 3 6 FRA withnotional principal of $200 million. Exhibit 9.13 presents the cash flow
Brandywine Asset Management fund has invested 5 percent of its portfolio of $1.8 billion in the inverse floater with a current yield of 18 percent. The higher yield in the inverse floater is due to falling interest rates, which make the inverse floater such an attractive issue at this time. The
The spot gold price is currently at $300/ounce. The Canadian Central Bank is contemplating leasing 300,000 ounces of gold to Barrick at the lease rate of 3.75 percent. Barrick intends to sell the leased gold at the current price and invest the proceeds for six months at the Canadian T-bill rate of
2. Using the following information, how would you show the board of direc- tors the advantages and disadvantages of each hedging tool?You have just been hired by Chockletto International as a risk manager. Chock- letto International is a Swiss manufacturer of fine perfume. It imports some of its
1. As a risk manager, you decided to hedge your position in the cash market. How will you use options contracts and/or futures contracts to hedge your position?You have just been hired by Chockletto International as a risk manager. Chock- letto International is a Swiss manufacturer of fine perfume.
5.What is the likely impact of the competitive issues raised by the British government on a deal for Safeway and on its shareholders?
4.What would a 2 percent swing in the exchange rate mean in an approximately £3 billion deal?
3.What is “the winner’s curse,” and is there a threat of that problem for Wal-Mart?
2.What is the likely impact of multiple bidders for Safeway for that com-pany’s shareholders?
1. Offers by J Sainsbury and William Morrison both are stock deals while Wal-Mart contemplates an all-cash offer. What are the implications for Safeway shareholders?
3. Now consider the consequences of several market scenarios at the final delivery day for the contract. Compute the gain or loss on Mainza Capital Management portfolio if the market at the final delivery day of the contract is:a.Index is 5 percent up.b.Index is 5 percent down.c.S&P index remains
1. What is the theoretical futures price for the three-month futures contract for Mainza Capital Management?
Evaluate Real-Wood’s alternatives.
a. What is covered interest rate parity (CIRP)?b.According to the Exhibit 1, does CIRP hold between Canada and the United States?c.If CIRP does not hold, where can you earn the best return?
a. What is the relationship between inflation and interest rates in one country?b.What is the relationship between inflation and interest rates between two countries?c.What is the relationship between inflation and exchange rates between two countries?
a. Distinguish spot and forward rates.b.What is meant by a forward premium or discount?c.What does the forward rate imply about the expected future spot rate?
a. What is purchasing power parity?b. If a Big Mac costs $1.99 (on average) in the United States, what should it cost (on average) in Canada?
a. Are the exchange rates in Exhibit 1 direct or indirect quotations?b. Calculate the corresponding direct/indirect quotations.
How does hedging resemble diversification? How does it differ?
a. Distinguish between hedging and speculation.b.In what sense does failure to hedge constitute speculation?c.Could Real-Wood profit by not hedging?
a. What is political risk?b.Is political risk confined exclusively to international transactions?c.Do only less-sophisticated Third World governments pose political risk?
a. What, in general, is exchange risk?b. What risk does Real-Wood face specifically?
7.Calculate the index of real exchange rates for China (assuming base year of 1994 and the index is set at 100). Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over Athens. The Areopagus rose in the distance, but the unusually dank morning rendered
6.How devaluation of China’s currency affected the current account balance? Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over Athens. The Areopagus rose in the distance, but the unusually dank morning rendered the mountain indistinct. Deep in
5.What is the current account deficit or surplus as percentage of GDP? Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over Athens. The Areopagus rose in the distance, but the unusually dank morning rendered the mountain indistinct. Deep in thought,
4.Did China have a financial account surplus or deficit?Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over Athens. The Areopagus rose in the distance, but the unusually dank morning rendered the mountain indistinct. Deep in thought, she pondered
3.Relate the percentage change in current account to the percentage changes in the all-urban Consumer Price Index during the same period. Was there a positive or a negative relation between the two? Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread
2.Was China’s current account in surplus or deficit? Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over Athens. The Areopagus rose in the distance, but the unusually dank morning rendered the mountain indistinct. Deep in thought, she pondered her
1.Did China have a merchandise (goods and services) trade surplus or deficit? What is the trend? Merlina Katapodis stared through her office window, scarcely noticing the murky haze that spread over Athens. The Areopagus rose in the distance, but the unusually dank morning rendered the mountain
Explain the Balance of Payments Exposure Management

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