Table 1. Dollar Spot Forward Against the Dollar High 0.0 DOLLAR SPOT FORWARD AGAINST THE DOLLAR Closing Change Bid/offer Day's mid One month Three month One year J.P. Morgan Dec 31 mid-point on day spread Low Rate %PA Rate %PA Rate %PA Index Europe Czech Rep. (Koruna) 22.9040 0.0983 888-192 22.9192 22.7210 22.8930 0.6 22.8763 0.5 22.7380 0.7 Denmark (Danish Krone) 6.1538 0.0333 525-550 6.1552 6.1192 6.1518 0.4 6.1486 0.3 6.1196 0.6 Hungary (Forint) 260.940 2.0305 263-530 261.540 258.230 261.195 -1.2 261.620 -1.0 263.340 -0.9 Norway (Nor. Krone) 7.4976 0.0870 932-019 7.5013 7.3840 7.5041 -1.0 7.5172 -1.0 7.5387 -0.5 Poland (Zloty) 3.5520 0.0256 504-536 3.5530 3.5000 3.5571 1.7 3.5663 -1.6 3.5897 1.1 Russia (Rouble) 60.0000 4.3330 500-500 60.5600 55.2900 61.1600 -22.8 63.2790-20.7 69.7325-14.0 Sweden (Krona) 7.8283 0.0777 241-324 7.8442 7.6964 7.8275 0.1 7.8256 0.1 7.8015 0.3 Switzerland (Fr) 0.9937 0.0051 934-939 0.9938 0.9877 0.9932 0.6 0.9919 0.7 0.9840 1.0 Turkey (New Lira) 2.3378 0.0127 372-383 2.3380 2.3200 2.3550 -8.8 2.3846 -7.9 2.5269 -7.5 UK () 1.5593 0.0032 590-595 1.5619 1.5547 1.5589 0.3 1.5581 0.3 1.5562 0.2 Euro (Euro) 1.2101 -0.0064 099-102 1.2170 1.2096 1.2105 -0.4 1.2111 -0.3 1.2165 -0.5 SDR (SDR) 0.6917 0.0013 Americas Argentina (Peso) 8.4645 -0.0860 635-655 8.4655 8.8150 -47.7 9.3350-37.3 11.9810-29.4 Brazil (Real) 2.6582 -0.0056 572-592 2.6592 2.6792 -9.4 2.7261-10.0 2.9417 .9.6 Canada (Canadian $) 1.1583 -0.0022 581-584 1.1615 1.1563 1.1590 -0.8 1.1606 -0.8 1.1671 -0.8 95.5 Mexico (Mexican Peso) 14.7398 0.0063 379-416 14.7690 14.6910 14.7675 -2.3 14.8234 2.3 15.0930 -2.3 122.3 Peru (New Sol) 2.9765 -0.0115 750-780 2.9935 2.9740 3.0000 -9.4 3.0375 -8.0 3.1411 -5.2 USA (US$) 81.4000 -0.0 Pacific/Middle East/Africa Australia (A$) 1.2220 0.0021 217-222 1.2222 1.2217 1.2247 2.7 1.2301 -2.6 1.2035 1.5 127.0 Hong Kong (HK$) 7.7549 -0.0023 543-554 7.7581 7.7535 7.7551 0.0 7.7551 0.0 7.7554 0.0 85.1 India (Indian Rupee) 63.1225 -0.2625 150-300 63.3850 63.0300 63.5375 -7.8 64.3525 -7.6 67.4425 -6.4 Indonesia (Rupiah) 12385.0-61.5000000-000 12450.0 12350.0 12452.5 -6.5 12590.0 -6.5 13235.0 -6.4 (Rial) 13569.0 -0.5000000-000 0.0 Israel (Shekel) 3.8915 -0.0011 896-933 3.9035 3.8746 3.8914 0.0 3.8895 0.2 3.8741 0.4 Japan (Yen) 119.895 0.5200 880-910 119.930 119.220 119.864 0.3 119.792 0.3 119.174 0.6 90.7 Kuwait (Kuwaiti Dinar) 0.2929 0.0003 928-930 0.2930 0.2921 0.2930 0.2 0.2931 0.3 0.2940 -0.4 Malaysia (Ringgit) 3.4965 -0.0020 950-980 3.4980 3.4890 3.5052 -3.0 3.5228 -3.0 3.5835 -2.4 New Zealand (NZ$) 1.2794 0.0051 791-798 0.7818 0.7814 1.2837 -4.0 1.2909 -3.5 1.3241 -3.4 108.9 Philippines (Peso) 44.7325 250-400 44.7750 44.7250 44.8025 -1.9 44.9075 -1.6 45.3875 -1.4 Saudi Arabia (Riyal) 3.7525 -0.0002 522-527 3.7532 3.7515 3.7522 0.1 3.7522 0.0 3.7572 -0.1 Singapore ($) 1.3251 0.0040 248-254 1.3254 1.3194 1.3262.1.0 1.3270 -0.6 1.3290 -0.3 85.2 South Africa (Rand) 11.5688 0.0135 637-738 11.5962 11.5330 11.6259 -5.9 11.7457 -6.0 12.3182 -6.1 Korea South (Won) 1099.15 900-930 1099.30 1086.67 1100.95 -2.0 1103.70 -1.6 1109.95 -1.0 142.2 Taiwan ($) 31.6020 -0.1225 000-040 31.7200 31.5300 31.5980 0.2 31.5800 0.3 31.3660 0.8 Thailand (Baht) 32.9000 900-100 32.9700 32.8000 32.9538 -2.0 33.0415 -1.7 33.3350 -1.3 UAE (Dirham) 3.6730 -0.0001 729-731 3.6730 3.6720 3.6729 0.0 3.6729 0.0 3.6743 0.0 *The closing mid-point rates for the Euro and are shown in brackets. The other figures in both rows are in the reciprocal form in line with market convention. Official rates set by Malaysian Government. The WM/Reuters rate for the valuation of capital assets in 2.80 MYR/USD. Bid/offer spreads in the Dollar Spot table show only the last three decimal places. J.P. Morgan nominal indices: Base average 2000 = 100. Bid, offer, mid spot rates and forward rates in both this and the pound table are derived from the WM/Reuters 4pm (London time) CLOSING SPOT and FORWARD RATE services. Some values are rounded by the F.T. Iran Dec 31 Short 7 days One Three Six One term notice month month month year Euro 0.04 - -0.02 0.02 - -0.08 0.06 -0.01 0.12 -0.07 0.18 -0.08 0.42 -0.32 Danish Krone 0.10--0.10 0.26 -0.01 0.21--0.04 0.22--0.08 0.28--0.02 0.44 -0.14 Sterling 0.55 -0.35 0.58 -0.48 0.65 -0.40 0.75 -0.45 0.85 -0.50 1.10 - 0.75 Swiss Franc 0.10 - -0.20 0.20--0.30 -0.05--0.35 -0.09--0.39 0.03 - -0.07 0.12--0.18 Canadian Dollar 1.20 - 0.85 1.05 -0.90 1.15 -1.00 1.26 - 1.11 1.38 - 1.23 1.67 - 1.52 US Dollar 0.25 -0.10 0.13 -0.03 0.40 -0.22 0.24 - 0.14 0.60 - 0.40 0.87 -0.77 Japanese Yen 0.22--0.02 0.03 - -0.17 0.08--0.12 0.11 - -0.02 0.15--0.02 0.27 - 0.02 Singapore $ 0.40 -0.30 0.44 -0.19 0.43 -0.25 0.47 -0.28 0.56 -0.31 0.72 - 0.53 Source: Reuters. Short term rates are call for the US Dollar and Yen, others: two day's notice. - BONDS - HIGH YIELD & EMERGING MARKET Day's Mth's Spread Red Ratings Bid Bid chge chge VS Dec 31 date Coupon S* M* F* price yield yield yield US High Yield US$ Bertin 10/16 10.25 BB Ba3 0 109.34 4.62 -0.06 0.79 3.94 High Yield Euro Kazkommerts Int 02/17 6.88 B Caal B 90.00 12.54 0.04 5.05 12.64 Emerging US$ Bulgaria 01/15 8.25 BB+ Baa2 BBB- 100.10 4.32 0.13 2.15 4.35 Peru 02/15 9.88 BBB+ A3 BBB+ 100.74 0.93 -0.04 1.54 0.89 Brazil 03/15 7.88 BBB- Baa2 BBB 101.33 0.04 -1.08 -0.52 -0.01 Mexico 09/16 11.38 BBB+ A3 BBB+ 117.63 0.86 -0.12 -0.04 0.19 Philippines 01/19 9.88 BBB Baa2 BBB- 130.56 1.94 -0.02 -0.14 0.28 Brazil 01/20 12.75 BBB- Baa2 BBB 144.00 3.20 -0.02 0.21 1.55 Colombia 02/20 11.75 BBB Baa2 BBB 140.24 3.19 -0.01 0.26 1.52 Russia 03/30 7.50 BBB- Baa2 BBB 103.25 6.72 0.26 1.40 5.07 Mexico 08/31 8.30 BBB+ A3 BBB+ 149.33 4.16 -0.05 -0.03 1.99 Indonesia 02/37 6.63 BB+ Baa3 BBB- 116.91 5.32 0.01 0.14 2.57 Emerging Euro Brazil 02/15 7.38 BBB- Baa2 BBB 100.31 3.62 0.14 2.36 3.82 Poland 02/16 3.63 A- A2 A- 103.50 0.35 -0.22 -0.10 0.43 Turkey 03/16 5.00 NR Baa3 BBB- 104.90 0.71 -0.25 -0.28 0.78 Mexico 02/20 5.50 BBB+ A3 BBB+ 119.77 1.46 -0.06 0.06 1.45 US $ denominated bonds NY close; all other London close. *S - Standard & Poor's, M - Moody's, F - Fitch. Source: Thomson Reuters Question 7 (1 point) Big Construction Corp. has just submitted a proposal to build a major construction project located in Italy. It won't find out for 90 days whether it has won the contract. If Big Construction Corp. wins the bid, they will receive a payment of EUR 1 billion in one year. The best way to protect against currency risk on its proposal is for Big Construction Corp. to: a) buy a euro futures contract Ob) sell a euro call option c) sell a euro futures contract d) buy a euro put option Question 8 (1 point) Insane Horror has a 1 million receivable that it expects to receive in one year. Suppose the interest rate on pounds is 1.1% (annualized). How could Insane Horror protect this receivable using a money market hedge? a) lend 989,119.68 pounds today b) borrow 909,090.91 pounds today c) borrow 989,119.68 pounds today d) lend 909,090.91 pounds today Question 9 (1 point) Croatian (US$-denominated) zero coupon bonds that repay $100 in 12-months have a yield to maturity of 1.6% per year. The sovereign spread vs Similar bonds issued by the US government is 1.3%. Croatia has a sovereign rating of BBB-. The bonds issued by the Croatian government should trade at a price of: a) $98.72 Ob) $99.33 Oc) $98.43 d) $98.65 e) $98.52 f) $98.95 Question 10 (1 point) Croatian (US$-denominated) zero coupon bonds that repay $100 in 12-months have a yield to maturity of 1.6% per year. The sovereign spread vs similar bonds issued by the US government is 1.3%. Croatia has a sovereign rating of BBB-. Assuming a recovery rate of 50%, the probability that the Croatian government will default is: O a) 0.38% Ob) 0.5% OC) 1.64% d) -0.5% e) -2.56% f) 2.56% O g) 3.15% Question 11 (1 point) Suppose a firm projects cash flows of $2.5 million, $3 million, and $4 million for years 1, 2, and 3, respectively, on an initial investment in Ecuador of $22 million. The firm projects a perpetuity of $5 million in years 4 and beyond. If the required return on this investment is 15%, how large does the probability of expropriation in year 3 have to be before the investment has a negative NPV? Expected compensation in year 3 in the event of expropriation is $5 million. a) 42% b) 33% c) 22% d) 49% Table 1. Dollar Spot Forward Against the Dollar High 0.0 DOLLAR SPOT FORWARD AGAINST THE DOLLAR Closing Change Bid/offer Day's mid One month Three month One year J.P. Morgan Dec 31 mid-point on day spread Low Rate %PA Rate %PA Rate %PA Index Europe Czech Rep. (Koruna) 22.9040 0.0983 888-192 22.9192 22.7210 22.8930 0.6 22.8763 0.5 22.7380 0.7 Denmark (Danish Krone) 6.1538 0.0333 525-550 6.1552 6.1192 6.1518 0.4 6.1486 0.3 6.1196 0.6 Hungary (Forint) 260.940 2.0305 263-530 261.540 258.230 261.195 -1.2 261.620 -1.0 263.340 -0.9 Norway (Nor. Krone) 7.4976 0.0870 932-019 7.5013 7.3840 7.5041 -1.0 7.5172 -1.0 7.5387 -0.5 Poland (Zloty) 3.5520 0.0256 504-536 3.5530 3.5000 3.5571 1.7 3.5663 -1.6 3.5897 1.1 Russia (Rouble) 60.0000 4.3330 500-500 60.5600 55.2900 61.1600 -22.8 63.2790-20.7 69.7325-14.0 Sweden (Krona) 7.8283 0.0777 241-324 7.8442 7.6964 7.8275 0.1 7.8256 0.1 7.8015 0.3 Switzerland (Fr) 0.9937 0.0051 934-939 0.9938 0.9877 0.9932 0.6 0.9919 0.7 0.9840 1.0 Turkey (New Lira) 2.3378 0.0127 372-383 2.3380 2.3200 2.3550 -8.8 2.3846 -7.9 2.5269 -7.5 UK () 1.5593 0.0032 590-595 1.5619 1.5547 1.5589 0.3 1.5581 0.3 1.5562 0.2 Euro (Euro) 1.2101 -0.0064 099-102 1.2170 1.2096 1.2105 -0.4 1.2111 -0.3 1.2165 -0.5 SDR (SDR) 0.6917 0.0013 Americas Argentina (Peso) 8.4645 -0.0860 635-655 8.4655 8.8150 -47.7 9.3350-37.3 11.9810-29.4 Brazil (Real) 2.6582 -0.0056 572-592 2.6592 2.6792 -9.4 2.7261-10.0 2.9417 .9.6 Canada (Canadian $) 1.1583 -0.0022 581-584 1.1615 1.1563 1.1590 -0.8 1.1606 -0.8 1.1671 -0.8 95.5 Mexico (Mexican Peso) 14.7398 0.0063 379-416 14.7690 14.6910 14.7675 -2.3 14.8234 2.3 15.0930 -2.3 122.3 Peru (New Sol) 2.9765 -0.0115 750-780 2.9935 2.9740 3.0000 -9.4 3.0375 -8.0 3.1411 -5.2 USA (US$) 81.4000 -0.0 Pacific/Middle East/Africa Australia (A$) 1.2220 0.0021 217-222 1.2222 1.2217 1.2247 2.7 1.2301 -2.6 1.2035 1.5 127.0 Hong Kong (HK$) 7.7549 -0.0023 543-554 7.7581 7.7535 7.7551 0.0 7.7551 0.0 7.7554 0.0 85.1 India (Indian Rupee) 63.1225 -0.2625 150-300 63.3850 63.0300 63.5375 -7.8 64.3525 -7.6 67.4425 -6.4 Indonesia (Rupiah) 12385.0-61.5000000-000 12450.0 12350.0 12452.5 -6.5 12590.0 -6.5 13235.0 -6.4 (Rial) 13569.0 -0.5000000-000 0.0 Israel (Shekel) 3.8915 -0.0011 896-933 3.9035 3.8746 3.8914 0.0 3.8895 0.2 3.8741 0.4 Japan (Yen) 119.895 0.5200 880-910 119.930 119.220 119.864 0.3 119.792 0.3 119.174 0.6 90.7 Kuwait (Kuwaiti Dinar) 0.2929 0.0003 928-930 0.2930 0.2921 0.2930 0.2 0.2931 0.3 0.2940 -0.4 Malaysia (Ringgit) 3.4965 -0.0020 950-980 3.4980 3.4890 3.5052 -3.0 3.5228 -3.0 3.5835 -2.4 New Zealand (NZ$) 1.2794 0.0051 791-798 0.7818 0.7814 1.2837 -4.0 1.2909 -3.5 1.3241 -3.4 108.9 Philippines (Peso) 44.7325 250-400 44.7750 44.7250 44.8025 -1.9 44.9075 -1.6 45.3875 -1.4 Saudi Arabia (Riyal) 3.7525 -0.0002 522-527 3.7532 3.7515 3.7522 0.1 3.7522 0.0 3.7572 -0.1 Singapore ($) 1.3251 0.0040 248-254 1.3254 1.3194 1.3262.1.0 1.3270 -0.6 1.3290 -0.3 85.2 South Africa (Rand) 11.5688 0.0135 637-738 11.5962 11.5330 11.6259 -5.9 11.7457 -6.0 12.3182 -6.1 Korea South (Won) 1099.15 900-930 1099.30 1086.67 1100.95 -2.0 1103.70 -1.6 1109.95 -1.0 142.2 Taiwan ($) 31.6020 -0.1225 000-040 31.7200 31.5300 31.5980 0.2 31.5800 0.3 31.3660 0.8 Thailand (Baht) 32.9000 900-100 32.9700 32.8000 32.9538 -2.0 33.0415 -1.7 33.3350 -1.3 UAE (Dirham) 3.6730 -0.0001 729-731 3.6730 3.6720 3.6729 0.0 3.6729 0.0 3.6743 0.0 *The closing mid-point rates for the Euro and are shown in brackets. The other figures in both rows are in the reciprocal form in line with market convention. Official rates set by Malaysian Government. The WM/Reuters rate for the valuation of capital assets in 2.80 MYR/USD. Bid/offer spreads in the Dollar Spot table show only the last three decimal places. J.P. Morgan nominal indices: Base average 2000 = 100. Bid, offer, mid spot rates and forward rates in both this and the pound table are derived from the WM/Reuters 4pm (London time) CLOSING SPOT and FORWARD RATE services. Some values are rounded by the F.T. Iran Dec 31 Short 7 days One Three Six One term notice month month month year Euro 0.04 - -0.02 0.02 - -0.08 0.06 -0.01 0.12 -0.07 0.18 -0.08 0.42 -0.32 Danish Krone 0.10--0.10 0.26 -0.01 0.21--0.04 0.22--0.08 0.28--0.02 0.44 -0.14 Sterling 0.55 -0.35 0.58 -0.48 0.65 -0.40 0.75 -0.45 0.85 -0.50 1.10 - 0.75 Swiss Franc 0.10 - -0.20 0.20--0.30 -0.05--0.35 -0.09--0.39 0.03 - -0.07 0.12--0.18 Canadian Dollar 1.20 - 0.85 1.05 -0.90 1.15 -1.00 1.26 - 1.11 1.38 - 1.23 1.67 - 1.52 US Dollar 0.25 -0.10 0.13 -0.03 0.40 -0.22 0.24 - 0.14 0.60 - 0.40 0.87 -0.77 Japanese Yen 0.22--0.02 0.03 - -0.17 0.08--0.12 0.11 - -0.02 0.15--0.02 0.27 - 0.02 Singapore $ 0.40 -0.30 0.44 -0.19 0.43 -0.25 0.47 -0.28 0.56 -0.31 0.72 - 0.53 Source: Reuters. Short term rates are call for the US Dollar and Yen, others: two day's notice. - BONDS - HIGH YIELD & EMERGING MARKET Day's Mth's Spread Red Ratings Bid Bid chge chge VS Dec 31 date Coupon S* M* F* price yield yield yield US High Yield US$ Bertin 10/16 10.25 BB Ba3 0 109.34 4.62 -0.06 0.79 3.94 High Yield Euro Kazkommerts Int 02/17 6.88 B Caal B 90.00 12.54 0.04 5.05 12.64 Emerging US$ Bulgaria 01/15 8.25 BB+ Baa2 BBB- 100.10 4.32 0.13 2.15 4.35 Peru 02/15 9.88 BBB+ A3 BBB+ 100.74 0.93 -0.04 1.54 0.89 Brazil 03/15 7.88 BBB- Baa2 BBB 101.33 0.04 -1.08 -0.52 -0.01 Mexico 09/16 11.38 BBB+ A3 BBB+ 117.63 0.86 -0.12 -0.04 0.19 Philippines 01/19 9.88 BBB Baa2 BBB- 130.56 1.94 -0.02 -0.14 0.28 Brazil 01/20 12.75 BBB- Baa2 BBB 144.00 3.20 -0.02 0.21 1.55 Colombia 02/20 11.75 BBB Baa2 BBB 140.24 3.19 -0.01 0.26 1.52 Russia 03/30 7.50 BBB- Baa2 BBB 103.25 6.72 0.26 1.40 5.07 Mexico 08/31 8.30 BBB+ A3 BBB+ 149.33 4.16 -0.05 -0.03 1.99 Indonesia 02/37 6.63 BB+ Baa3 BBB- 116.91 5.32 0.01 0.14 2.57 Emerging Euro Brazil 02/15 7.38 BBB- Baa2 BBB 100.31 3.62 0.14 2.36 3.82 Poland 02/16 3.63 A- A2 A- 103.50 0.35 -0.22 -0.10 0.43 Turkey 03/16 5.00 NR Baa3 BBB- 104.90 0.71 -0.25 -0.28 0.78 Mexico 02/20 5.50 BBB+ A3 BBB+ 119.77 1.46 -0.06 0.06 1.45 US $ denominated bonds NY close; all other London close. *S - Standard & Poor's, M - Moody's, F - Fitch. Source: Thomson Reuters Question 7 (1 point) Big Construction Corp. has just submitted a proposal to build a major construction project located in Italy. It won't find out for 90 days whether it has won the contract. If Big Construction Corp. wins the bid, they will receive a payment of EUR 1 billion in one year. The best way to protect against currency risk on its proposal is for Big Construction Corp. to: a) buy a euro futures contract Ob) sell a euro call option c) sell a euro futures contract d) buy a euro put option Question 8 (1 point) Insane Horror has a 1 million receivable that it expects to receive in one year. Suppose the interest rate on pounds is 1.1% (annualized). How could Insane Horror protect this receivable using a money market hedge? a) lend 989,119.68 pounds today b) borrow 909,090.91 pounds today c) borrow 989,119.68 pounds today d) lend 909,090.91 pounds today Question 9 (1 point) Croatian (US$-denominated) zero coupon bonds that repay $100 in 12-months have a yield to maturity of 1.6% per year. The sovereign spread vs Similar bonds issued by the US government is 1.3%. Croatia has a sovereign rating of BBB-. The bonds issued by the Croatian government should trade at a price of: a) $98.72 Ob) $99.33 Oc) $98.43 d) $98.65 e) $98.52 f) $98.95 Question 10 (1 point) Croatian (US$-denominated) zero coupon bonds that repay $100 in 12-months have a yield to maturity of 1.6% per year. The sovereign spread vs similar bonds issued by the US government is 1.3%. Croatia has a sovereign rating of BBB-. Assuming a recovery rate of 50%, the probability that the Croatian government will default is: O a) 0.38% Ob) 0.5% OC) 1.64% d) -0.5% e) -2.56% f) 2.56% O g) 3.15% Question 11 (1 point) Suppose a firm projects cash flows of $2.5 million, $3 million, and $4 million for years 1, 2, and 3, respectively, on an initial investment in Ecuador of $22 million. The firm projects a perpetuity of $5 million in years 4 and beyond. If the required return on this investment is 15%, how large does the probability of expropriation in year 3 have to be before the investment has a negative NPV? Expected compensation in year 3 in the event of expropriation is $5 million. a) 42% b) 33% c) 22% d) 49%