Hello,

Someone please assist with the homework assignment below, I have 1 hour to answer.

Question 1.1.Triangular arbitrage tends to force a relationship between the interest rates of two countries and their forward exchange rate premium or discount. (Points : 3.6)

True False

Question 2.2.The central bank of Singapore government exchanges its currency for other foreign currencies in the foreign exchange market, but does not adjust for the resulting change in the money supply. This is an example of (Points : 3.6)

indirect intervention. sterilized intervention. non-sterilized intervention. pegged intervention. none of the above

Question 3.3.The Brazilian government decides to implement the currency intervention as its policy tool. Therefore, if the Brazilian government wants toreduce its inflation, the Brazilian government should (Points : 3.6)

buyBrazilian dollars with foreign currency toweakenBrazilian dollars. sellBrazilian dollars for foreign currency tostrengthenBrazilian dollars. buyBrazilian dollars with foreign currency tostrengthenBrazilian dollars. sellBrazilian dollars for foreign currency toweakenBrazilian dollars.

Question 4.4.Assume the following information: You have $2,000 (US dollars) to invest: Current spot rate of euro = $1.20 1-year forward rate of euro = $1.19 1-year deposit rate in U.S. = 3% 1-year deposit rate in Europe = 4.5% If you use covered interest arbitrage for a 1-year investment, what will be the amount of U.S. dollars you will have after one year? (Points : 3.6)

$2,072.58. $2,042.83. $2,107.56. $2,077.31.

Question 5.5.Continued from the above question, for the covered interest arbitrage to work for a U.S. investor with U.S. dollars, what does the following condition need to hold? (Points : 3.6)

The yield from the covered interest arbitrage strategy needs to behigherthan 1-year deposit rate in U.S. The yield from the covered interest arbitrage strategy needs to belowerthan 1-year deposit rate in U.S. The yield from the covered interest arbitrage strategy needs to belowerthan 1-year deposit rate in Europe. The yield from the covered interest arbitrage strategy needs to behigher than 1-year deposit rate in Europe.

Question 6.6.Due to ____, market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount) on the forward exchange rate between the two currencies. (Points : 3.6)

forward realignment arbitrage triangular arbitrage covered interest arbitrage locational arbitrage

Question 7.7.Kroger, Inc. (U.S. based MNC) needs to invest ten million Mexican Pesos in its Mexico subsidiary to support local operations today. Kroger would like its subsidiary to repay the Mexican Pesos in one year. To hedge the exchange rate risk arising from this financing support, Kroger would engage in a swap transaction involving a forward contract. Thus, in accordance with the swap transaction, Kroger would: (Points : 3.6)

convert the dollars to Mexican Pesos in the spot market today and convert dollars to Mexican Pesos in one year at the prevailing spot rate one year later. convert the dollars to Mexican Pesos in the spot market today and convert Mexican Pesos to dollars in one year at today's one-year forward rate. convert the dollars to Mexican Pesos in the spot market today and convert Mexican Pesos to dollars in one year at the prevailing spot rate one year later. convert the Mexican Pesos to dollars in the spot market today and convert Mexican Pesos to dollars in one year at today's one-year forward rate.

Question 8.8.PWG (a U.S. based firm) negotiate a conditional currency put options with a bank to hedge its accounts receivable of 10 million euros due on March 31. PWG will only exercise its option on the due date. The terms of the conditional currency put options are as follows: K (exercise price) = $1.08 per euro, Trigger = $1.12 per euro, premium = $0.05 per eruo, expiration date = March 31. If the spot rate on the due date, i.e., March 31, is $1.05 per euro, what is the amount of U.S. dollar PWG expect to receive for its 10 million euros? (Points : 3.6)

$10.00 million. $10.50 million. $10.30 million. $10.80 million.

Question 9.9.Assume the following information: H.B.C. Bank J.P. Bank Bid price of Hong Kong dollar$.136$.133 Ask price of Hong Kong dollar$.137$.135 Given this information, is locational arbitrage possible? If so, explain the steps involved in locational arbitrage, and compute the profit from this arbitrage if you had $3,000,000 to use. (Points : 3.6)

Yes, locational arbitrage is possible. One could purchase Hong Kong dollars at J.P. Bank for $.135 and sell them to H.B.C. Bank for $.136. With $3 million available, the profit will be $22,222.22. Yes, locational arbitrage is possible. One could purchase Hong Kong dollars at J.P. Bank for $.135 and sell them to H.B.C. Bank for $.136. With $3 million available, the profit will be $3,000. Yes, locational arbitrage is possible. One could purchase Hong Kong dollars at J.P. Bank for $.133 and sell them to H.B.C. Bank for $.137. With $3 million available, the profit will be $90,225.56. Yes, locational arbitrage is possible. One could purchase Hong Kong dollars at J.P. Bank for $.133 and sell them to H.B.C. Bank for $.137. With $3 million available, the profit will be $12,000.

Question 10.10.Assume the following information is available for the U.S. and China: U.S.China Nominal one-year interest rate5%2% Expected inflation 4.5%0.5% Spot rate ----- $.2000/renminbi What shall the one-year forward rate for renminbi be if the interest rate parity holds?(Use the exact formula for calculations.) (Points : 3.6)

$0.1943/renminbi $0.2059/renminbi $0.1923/renminbi $0.2080/renminbi $0.2000/renminbi

Question 11.11.Which of the following istrue? (Points : 3.6)

If interest rate parity (IRP) exists, then triangular arbitrage will not be possible. Pointsabovethe IRP line represent situations where covered interest arbitrage is feasible from the perspective of domestic investors and results in a yield above what is possible domestically. Any point lyingbelowthe PPP (Purchasing Power Parity) line represents Purchasing Power Disparity and signals decreased purchasing power of foreign goods. If the cross exchange rate of two nondollar currencies implied by their individual spot rates with respect to the dollar is less than the cross exchange rate quoted by a bank,locational arbitrageis possible. None of the above.

Question 12.12.In which case will locational arbitrage most likely be feasible? (Points : 3.6)

One bank's ask price for a currency is less than another bank's bid price for the currency. One bank's bid price for a currency is less than another bank's ask price for the currency. One bank's ask price for a currency is less than another bank's ask price for the currency. One bank's bid price for a currency is less than another bank's bid price for the currency.

Question 13.13.Which of the following isNOT TRUEregarding IRP (Interest Rate Parity), PPP (Purchasing Power Parity), and IFE (International Fisher Effect)? (Points : 3.6)

IRP suggests that a currency's spot rate will change according to interest rate differentials. IFE suggests that a currency's spot rate will change according to interest rate differentials. PPP suggests that a currency's spot rate will change according to inflation rate differentials. All of the above are true.

Question 14.14.Which of the following is a correct statement? (Points : 3.6)

The international Fisher effect (IFE) suggests that the currencies with relatively high interest rates will depreciate. According to purchasing power parity (PPP), if a foreign country's inflation rate isabovethe inflation rate at home, home country consumers will increase their imports from the foreign country and foreign consumers will lower their demand for home country products.These market forces cause the foreign currency toappreciate. If the international fisher effect (IFE) theory holds, that means that covered interest arbitrage is not feasible.

Question 15.15.Assume the following information: BidAsk C$ in $ (i.e. $/C$)$0.99$1.01 MYR in $ (i.e. $/MYR)$0.24$0.25 C$ in MYR (i.e. MYR/C$)MYR3.45MYR3.50 You have $10,000. Can you use triangular arbitrage to generate a profit? (Points : 3.6)

Yes, I can earn arbitrage profits of $115.08. Yes, I can earn arbitrage profits of $26,465.35. Yes, I can earn arbitrage profits of $262.86. Yes, I can earn arbitrage profits of $26,282.83. No, it's impossible to make triangular arbitrage profits.

Question 16.16.Ana Smith does not believe that the international Fisher effect (IFE) holds. Current one-year interest rates in Europe are 12 percent, while one-year interest rates in the U.S. are 5 percent. Ana converts $100,000 to euros and invests them in France. One year later, she converts the euros back to dollars. The current spot rate of the euro is $1.28. If the spot rate of the euro in one year is $1.08, what is Anas percentage return from her strategy? (Points : 3.6)

8.10%. -94.50%. -5.50%. 108.15%. None of the above.

Question 17.17.Continued from the above Question, what must the spot rate of the euro be in one year for Ana's strategy to be successful? (Points : 3.6)

As long as the spot rate is above $1.08 per euro, Anas strategy can be successful. As long as the spot rate is above $1.20 per euro, Anas strategy can be successful. As long as the spot rate is below $1.08 per euro, Anas strategy can be successful. As long as the spot rate is below $1.20 per euro, Anas strategy can be successful.

Question 18.18.Australian investors are benefiting from covered interest arbitrage due to high interest rates on U.S. dollars. Which of the following forces should result from the act of this covered interest arbitrage? (Points : 3.6)

upward pressure on the Australian dollar's spot rate, and upward pressure on the Australian dollar's forward rate. downward pressure on the Australian dollar's spot rate, and downward pressure on the Australian dollar's forward rate. downward pressure on the Australian dollar's spot rate, and upward pressure on the Australian dollar's forward rate. upward pressure on the Australian dollar's spot rate, and downward pressure on the Australian dollar's forward rate.

Question 19.19.The inflation rate in the U.S. is 8%, while the inflation rate in Malaysia is 2%. The current exchange rate for the Malaysian Ringgit(MYR) is $0.2300 per Malaysian Ringgit. After supply and demand for the Malaysian Ringgit has adjusted in the manner suggested by purchasing power parity, the new exchange rate for the Malaysian Ringgit will be:(Use the exact formula for calculations.) (Points : 3.6)

$0.2436. $0.2165. $0.2428. $0.2390.

Question 20.20.If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should: (Points : 3.6)

exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars. exchange foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars. exchange dollars for foreign currencies, and buy existing Treasury securities with dollars. exchange foreign currencies for dollars, and buy existing Treasury securities with dollars.

Question 21.21.Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds the U.S. interest rate, the (Points : 3.6)

larger will be the forward discount of the foreign currency. larger will be the forward premium of the foreign currency. smaller will be the forward premium of the foreign currency. smaller will be the forward discount of the foreign currency.

Question 22.22.Proctor and Gamble, Inc., a U.S.-based MNC, willreceive20 million Chilean Peso on June 1. It is now March 1, Proctor and Gamble has negotiated a non-deliverable forward contract with its bank. The reference rate is the Chilean Peso's closing exchange rate (in $) quoted by Chile's central bank in 90 days. The Chilean Peso's spot rate today is $.0015 per Chilean peso. If the rate quoted by Chile's central bank on September 1 is $.0013, Johnson & Johnson will ____ $____. (Points : 3.6)

pay; 40,000 be paid; 40,000 pay; 4,000 be paid; 4,000 none of the above

Question 23.23.The following regression analysis was conducted for the inflation rate information and exchange rate of the British pound: where is the error term,,e_BPis the percentage change of the value of British pounds. Then (Points : 3.6)

For purchasing power parity to hold,a₀= 0 anda₁= 2. For purchasing power parity to hold,a₀= 1 anda₁= 1. For purchasing power parity to hold,a₀= 0 anda₁= 1. For purchasing power parity to hold,a₀= 1 anda₁= 0.

Question 24.24.Bank of America believes the Singapore dollar (S$) will depreciate over the next 18 days from $.75 to $.70. The following annual interest rates apply: CurrencyLending RateBorrowing Rate Dollars6.73%7.20% Singapore dollar (S$)6.80%7.28% Bank of America has the capacity to borrow either S$20 million or $10 million. If Bank of America's forecast is correct, how shall Bank of America implement its speculating trading activities and what will its dollar profit be from speculation over the 18-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)? (30/360 convention used for the interest calculation, i.e., assuming 360 days a year) (Points : 3.6)

Bank of America shall borrow $10 million at the annual rate of 7.20% for 18 days, convert $10 million to S$ at the rate of $0.75/S$, invest the SS$ converted at the annual rate of 6.80% for 18 days. Doing so, Bank of America will realize the profit of$950,645.00. Bank of America shall borrow S$20 million at the annual rate of 7.28% for 18 days, convert S$20 million to $ at the rate of $0.75/S$, invest the $ converted at the annual rate of 6.73 % for 18 days. Doing so, Bank of America will realize the profit of $896,558.00. Bank of America shall borrow $10 million at the annual rate of 7.20% for 18 days, convert $10 million to S$ at the rate of $0.75/S$, invest the SS$ converted at the annual rate of 6.80% for 18 days. Doing so, Bank of America will realize the profit of$787,210.00. Bank of America shall borrow S$20 million at the annual rate of 7.28% for 18 days, convert S$20 million to $ at the rate of $0.75/S$, invest the $ converted at the annual rate of 6.73 % for 18 days. Doing so, Bank of America will realize the profit of $999,515.00.

Question 25.25.Bank of America believes the Singapore dollar (S$) will appreciate over the next 36 days from $.70 to $.75. The following annual interest rates apply: CurrencyLending RateBorrowing Rate Dollars6.73%7.20% Singapore dollar (S$)6.80%7.28% Bank of America has the capacity to borrow either S$20 million or $10 million. If Bank of America's forecast is correct, how shall Bank of America implement its speculating trading activities and what will its dollar profit be from speculation over the 36-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)? (30/360 convention used for the interest calculation, i.e., assuming 360 days a year) (Points : 3.6)

Bank of America shall borrow $10 million at the annual rate of 7.20% for 36 days, convert $10 million to S$ at the rate of $0.70/S$, invest the SS$ converted at the annual rate of 6.80% for 36 days. Doing so, Bank of America will realize the profit of $695,120.38. Bank of America shall borrow S$20 million at the annual rate of 7.28% for 36 days, convert S$ 10 million to $ at the rate of $0.70/S$, invest the $ converted at the annual rate of 6.80 % for 36 days. Doing so, Bank of America will realize the profit of $785,290.13. Bank of America shall borrow $10 million at the annual rate of 7.20% for 36 days, convert $10 million to S$ at the rate of $0.70/S$, invest the SS$ converted at the annual rate of 6.80% for 36 days. Doing so, Bank of America will realize the profit of $715,142.86. Bank of America shall borrow S$20 million at the annual rate of 7.28% for 36 days, convert S$ 10 million to $ at the rate of $0.70/S$, invest the $ converted at the annual rate of 6.80 % for 36 days. Doing so, Bank of America will realize the profit of $813,526.08.

Question 26.26.Assume that the U.S. and Canada nominal interest rates are equal. Then, the Canada nominal interest rate increases while the U.S. nominal interest rate remains stable. According to the international Fisher effect, this implies expectations of ____ than before, and that the Canadian dollars should ____ against the dollar. (Points : 3.6)

higher Canada inflation; appreciate lower Canada inflation; depreciate higher Canada inflation; depreciate lower Canada inflation; appreciate none of the above

Question 27.27.Which of the following is a correct statement? (Points : 3.6)

A central bank may attempt to stimulate a stagnant economy bystrengtheningthe value of the currency orraisingthe interest rate. A central bank may attempt to stimulate a stagnant economy bystrengtheningthe value of the currency orloweringthe interest rate. A central bank may attempt to stimulate a stagnant economy byweakeningthe value of the currency orraisingthe interest rate. A central bank may attempt to stimulate a stagnant economy byweakeningthe value of the currency orloweringthe interest rate.

Question 28.28.There are sometimes no substitutes for traded goods, so this will reduce the probability that the Purchasing Power Parity shall hold. (Points : 3.6)

True False

Question 29.29.A trader predicts that there will be great price movements of USD/British Pounds in the near future but does not know which direction the price will move, so he decides to use the long strangle forex options trading strategy to make money in the forex market. The information for the call options and put options and put available for him are given below: Call option premium on British Pounds () = $.020 Put option premium on British Pounds ()= $.015 Call option strike price 1= $1.25 Put option strike price 1= $1.28 One option contract represents 100,000 What is/are the break-even point(s)(i.e., exchange rate(s)) for this strangle? (Points : 3.6)

The lower break-even point is $1.25/, and the higher break-even point is $1.28/. The lower break-even point is $1.245/, and the higher break-even point is $1.285/. The lower break-even point is $1.22/, and the higher break-even point is $1.295/. The lower break-even point is $1.235/, and the higher break-even point is $1.282/. The lower break-even point is $1.215/, and the higher break-even point is $1.315/.

Question 30.30.Continued from Question 29, if the trader uses two call options contracts and two put options contracts to construct the long strangle strategy, what will be the traders profit if the spot rate on the option expiration date is $1.30? (Points : 3.6)

$10,000 $3,000 $17,000 $6,800

Question 31.31.A trader predicts that there will be limited price movements of USD/ in the near future but does not know which direction the price will move, so he decides to use the shortstraddle forex options trading strategy to make money in the forex market. The information for the call options and put options and put available for him are given below: Call option and put option strike price = $1.68/ Put option premium = $0.020 per unit Call option premium = $0.045 per unit One option contract represents 100,000 What is/are break-even point(s) (i.e., the exchange rate(s)) for the straddle? (Points : 3.6)

The lower break-even point is $1.66/, and the higher break-even point is $1.725/. The lower break-even point is $1.635/, and the higher break-even point is $1.700/. The lower break-even point is $1.625/, and the higher break-even point is $1.745/. The lower break-even point is $1.615/, and the higher break-even point is $1.745/.

Question 32.32.Continued from Question 31, what is the point (i.e., the exchange rate) that the maximum profit occurs? (Points : 3.6)

$1.680/ $1.745/ $1.615/ $1.635/ $1.725/

Question 33.33.Continued from Question 31, What are ranges of the exchange rate movement that guarantee profits? And what is the maximum possible loss?

(Points : 3.6)

The exchange rate must fall between $1.66/and $1.725/to guarantee and the maximum possible loss is infinity. The exchange rate must fall between $1.625/and $1.745/to guarantee and the maximum possible loss is infinity. The exchange rate must fall between $1.615/ and $1.745/to guarantee and the maximum possible loss is infinity. The exchange rate must fall between to $1.635/ and $1.700/guarantee and the maximum possible loss is infinity. None of the above is correct.