QUESTION 12

Based on the preceding hedged transaction, did interest rate parity hold? CORRECT ANSWER GIVEN!!!

	Yes, a gain is realized on the hedging transaction
	No, a gain is realized on the hedging transaction
	No, a loss is realized on the hedging transaction ****
	Yes, a loss is realized on the hedging transaction
	Yes, neither a gain nor a loss is realized on the hedging transaction all the other questions are in the word document 8 total questions

1. QUESTION 23 On 11/8/11, the USD-JPY exchange rate was 77.746 per $1. Also on the same day, the USD-GPB exchange rate was $1.6086 per 1. Find the cross rate between GBP and JPY. 125.06 22 yen 115.06 22 yen 0.0079 96 pound 0.0128 6 pound CURRENCY SWAP. For this and the next 3 questions: Consider a currency swap between Party X in the USA and Party Y in Switzerland. The swap is for $10 million and SF15 million. Party Y pays dollars of interest to X at a fixed interest rate of 9%. Party X in USA pays Swiss francs (SF) at a fixed rate of 8%. The payments are made semi-annually based on the exact day count and 360 days in a year. The current period has 181 days. At the initiation of the swap, how much will Party X owe (deliver to) Party Y? QUESTION 29 At the initiation of the swap, what exchange rate (in direct quote) is implied in the amounts to be exchanged? $0.67 $1.50 $1.00 None of the above QUESTION 18 Which of the following factors is likely to affect the value of a currency? [I] Interest rate levels [II] Trade deficit [III] Central bank intervention [IV] political instability. Chose best answer. I, II, IV III, IV I, III, IV All of the above QUESTION 16 If the U.S. firm described above is afraid the euro will _____ when it comes time to bring home its profits, it could hedge this ____ risk by ____ euro futures or forward contracts. Weaken; exchange rate; selling Strengthen; exchange rate; buying Weaken; commodity price; selling Strengthen; exchange rate; selling Weaken; exchange rate; buying None of the above is correct QUESTION 15 It costs a U.S. firm located in Hammond, Indiana $1.45 to make and ship a product to Holland. Suppose the direct quote for the euro is $1.12. How much should the U.S. firm sell the product in Holland in order to have a 50 percent markup? 1.051 1.942 2.175 1.576 None of the above QUESTION 13 Suppose the spot exchange rate (direct quote) for the Brazilian real is $0.5555 per real. Interest rates on U.S. and Brazilian government bonds are shown below: Maturity 1 2 3 rUS 3.0% 3.5% 4.0% rBRZL 11.30% 11.70% 11.80% Use the interest rate parity to calculate the expected forward exchange rates for the Brazilian real for years 1 and 3. The expected forward exchange rate for year 2 is $0.4769. $0.5141; $0.4472 $0.5155; $0.4472 $0.5144; $0.4443 None of the above FOR THIS AND THE NEXT 4 QUESTIONS. Suppose there is an interest rate spread of 1% between the United States and South Africa (S.A.). The yield on a one-year U.S. Treasury security is 5% (rd = 5%) while the yield on a comparable South African security is 6% (rF = 6%). You wish to invest $50,000. The indirect quote for the rand-dollar (R/$) spot exchange rate is 7 South African rands (R7) per dollar. Suppose you invest your funds in U.S. securities for 6 months. Calculate the future value of your investment. QUESTION 9 If, instead, you invest your funds in South African securities for 6 months, what is the future value of your investment? R 360,500 R 358,750 R 53,000 R 51,500 R 371,000 QUESTION 12 Based on the preceding hedged transaction, did interest rate parity hold? CORRECT ANSWER GIVEN!!! Yes, a gain is realized on the hedging transaction No, a gain is realized on the hedging transaction No, a loss is realized on the hedging transaction **** Yes, a loss is realized on the hedging transaction Yes, neither a gain nor a loss is realized on the hedging transaction