英文版国际金融练习题Chapter_5

INTERNATIONAL FINANCEAssignment Problems (5) Name: Student#: I. Choose the correct answer for the following questions (only ONE correct answer) (3 credits for each question, total credits 3 x 20 = 60)1. When the supply of and demand for a foreign exchange in the foreign exchange market are exactly the same, the exchange rate is the __________.A. real exchange rateB. effective exchange rateC. equilibrium exchange rateD. cross exchange rate2. An increase in the demand for French goods and services will __________.A. induce a rightward shift in the demand for euroB. induce a leftward shift in the demand for euroC. result in a rightward movement along the demand curve for euroD. result in a leftward movement along the demand curve for euro3. If U.S. demand for Japanese goods increases and Japan’s demand for U.S. products also rises at the same time, which of the following can you conclude in this situation?A. The U.S. dollar will appreciate against the yen.B. The U.S. dollar will depreciate against the yen.C. The U.S. dollar will not change relative to the yen.D. The U.S. dollar may appreciate, depreciate, or remain unchanged against theyen.4. If the price of a pair of Nike sneakers costs $85 in U.S, and the price of the same sneakers is €80 in Paris, the spot rate is $1.35 per euro, the euro __________.A. is correctly valued according to PPPB. is correctly valued according to relative PPPC. is undervalued according to PPPD. is overvalued according to PPP5. If the expected exchange rate E (S B/A) according to the relative purchasing power parity is lower than the spot exchange rate (S B/A), we may conclude that __________.A. country B is expected to run huge BOP surplus with country AB. country A’s interest rate is going to be lower than that of country B’sC. the expected inflation rate in country A is higher than the expected inflation rate in country BD. the expected inflation rate in country A is lower than the expected inflation rate in country B6. Assume that PPP holds in the long run. If the price of a tradable good is $20 in theU.S. and 100 pesos in Mexico; and the exchange rate is 7 pesos/$ right now, which of the following changes might we expect in the future?A. an increase in the price of the good in the U.SB. a decrease in the price of the good in MexicoC. an appreciation of the peso in nominal termsD. a depreciation of the peso in nominal terms7. Which basket of goods would be most likely to exhibit absolute purchasing powerparity?A. Highly tradable commodities, such as wheatB. The goods in the Consumer Price indexC. Specialized luxury goods, which are subject to different tax rates across countriesD. Locally produced goods, such as transportation services, which are not easily traded8. The absolute purchasing power parity says that the exchange rate between the two currencies should be determined by the __________ .A. relative inflation rate of the two currenciesB. relative price level of the two countriesC. relative interest rate of the two currenciesD. relative money supply of the two countries9. According to the relative PPP, if country A’s inflation rate is higher than country B’s inflation rate by 3%, __________.A. country A’s currency should depreciate against country B’s currency by 3%B. country A’s currency should appreciate against country B’s currency by 3%C. it is hard to say whether country A’s currency should appreciate or depreciate against country B’s currency. The exchange rate is influenced by many factorsD. none of the above is true10. If the law of one price holds for a particular good, we may conclude that __________.A. there is no trade barriers for the good among the different nationsB. the price of the good is the same ignoring the other expensesC. arbitrage for the good does not existD. all of the above are true11. An investor borrows money in one market, sells the borrowed money on the spot market, invests the proceeds of the sale in another place and simultaneously buys back the borrowed currency on the forward market. This is called __________.A. uncovered interest arbitrageB. covered interest arbitrageC. triangular arbitrageD. spatial arbitrage12. Real return equalization across countries on similar financial instruments is called __________.A. interest rate parityB. uncovered interest parityC. forward parityD. real interest parity13. In which of the following situations would a speculator wish to sell foreign currency on the forward market?A. If E[S1d/f] < F1d/fB. If E[S1d/f] > F1d/fC. If E[S1d/f] = F1d/fD. If E[S1d/f] = 1/F1d/f14. According to IRP, if the interest rate in country A is higher than that in country B, the forward exchange rate, defined as F1A/B is expected to be __________.A. lower than the spot rate S0A/BB. the same as the spot rate S0A/BC. higher than the spot rate S0A/BD. necessary the same as the future spot rate S1A/B15. For arbitrage opportunities to be practicable, __________.A. arbitragers must have instant access to quotesB. arbitragers must have instant access to executionsC. arbitragers must be able to execute the transactions without an initial sum of money relying on their bank’s credit standingD. All of the above must be true.16. The __________ states that the forward exchange rate quoted at time 0 for delivery at time t is equal to what the spot rate is expected to be at time t.A. interest rate parityB. uncovered interest parityC. forward parityD. real interest parity17. Assume expected value of the U.S. dollar in the future is lower than that now compared to the value of the Japanese yen. The U.S. inflation rate must be higher than Japan’s inflation rate according to __________.A. relative PPPB. Fisher equationC. International Fisher relationD. IRP18. According to covered interest arbitrage if an investor purchases a five-year U.S. bond that has an annual interest rate of 5% rather than a comparable British bond that has an annual interest rate of 6%, then the investor must be expecting the __________ to __________ at a rate at least of 1% per year over the next 5 years.A. British pound; appreciateB. British pound; revalueC. U.S. dollar; appreciateD. U.S. dollar; depreciate19. Covered interest arbitrage moves the market __________ equilibrium because __________.A. toward; investors are now more willing to invest in risky securitiesB. toward; purchasing a currency on the spot market and selling in the forward market narrows the differential between the twoC. away from; purchasing a currency on the spot market and selling in the forward market increases the differential between the twoD. away from; demand for the stronger currency forces up the interest rates on the weaker security20. If the forward exchange rate is an unbiased predictor of the expected future spot rate, which of the following is NOT true?A. The future spot rate will actually be equal to what the forward rate predictsB. The forward premium or discount reflects the expected change in the spot exchange rate.C. Speculative activity ensures that the forward rate does not diverge too far from the market’s consensus expectation.D. All of the above are true.II. Problems (40 credits)1.The Argentine peso was fixed through a currency board at Ps1.00/$ throughout the 1990s. In January 2002 the Argentine peso was floated. On January 29, 2003, it was trading at Ps3.20/$. During that one year period Argentina’s inflation rate was 20% on an annualized basis. Inflation in the United States during that same period was2.2% annualized. (10 credits)a. What should have been the exchange rate in January 2003 if purchasing power parity held?b. By what percentage was the Argentine peso undervalued on an annualized basis?2. Assume that the interest rate paid by an American borrower on a ten-year foreign bond is 10% if the bond is sold in Denmark and 7% if the bond is sold in the Netherland. Will the expected inflation rate in the Netherlands likely be higher than the expected inflation rate in Denmark? Will the Danish kroner be expected to increase in value against the Dutch guilder? Explain your answer. (5 credits)3. Suppose S = $1.25/₤ and the 1-year forward rate is F = $1.20/₤. The real interest rate on a riskless government security is 2 percent in both England and the United States. The U.S. inflation rate is 5 percent. (5 credits)a. What is England’s nominal required rate of return on riskless government securities?b. What is England’s inflation rate if the equilibrium relationships hold?4. Akira Numata, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $5,000,000 or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest rate quotes: (12 credits)Spot rate: ¥118.60/$ 180-day forward rate: ¥117.80/$ 180-day dollar 4.8% per yearinterest rate180-day yen 3.4% per yearinterest rateThe bank does not calculate transaction costs on any individual transaction because these costs are part of the overall operating budget of the arbitrage department. Plot the given information on the covered interest parity grid. Explain and illustrate the specific steps Akira must take to make a covered interest arbitrage profit.5. On a particular day, the spot rate between Czech koruna (CKR) and the U.S. dollar is CKR30.35/$, while the interest rate on a one-year financial instrument in Czech is7.5% and 3.5% in U.S. (8 credits)a. What is your expected spot exchange rate a year later?b. You’re concerned your investment in the Czech Republic because of the economic uncertainty in that country. When you expect the future value of the koruna, you require a risk premium of 2%. What is the expected future spot rate supposed to be?Answers to Assignment Problems (5)Part II1. a. inflation differential (20% -2.2%) = 17.8%U.S. should have appreciated by 17.8%Implied exchange rate 1(1 + 17.8%) = Ps1.178/$b. (1.178 – 3.2 ) / 3.2 = -63.19%2. a. According to international Fisher equation: (1 + i d) / (1 + i f) = (1 + E[πd]) / (1 + E[πf])i d: interest rate in Denmarki f: interest rate in Netherlandπd: Danish inflation rateπf Dutch inflation rateSince (1 + i d) / (1 + i f) = (1 +10%)/(1 + 7%) > 0So, (1 + E[πd]) / (1 + E[πf]) >0, which means the expected inflation rate in Denmark would be greater than that in Netherland.b. If Danish inflation is higher than Dutch inflation, Danish kroner will be expected to decrease in value against the Dutch guilder. (relative PPP theory)3. a. U.S. nominal interest rate 2% + 5% = 7% (Fisher equation)7% - U.K.i = (1.2 – 1.25)/1.25 (IRP)U.K.i = 7% + 4% = 11%b. 11% - 2% = 9% (Fisher equation)4. a. According to IRP:i￥– i$ = 4.8%/2 – 3.4%/2 = 0.7% = 0.007(F￥/$– S￥、$) / S￥/$ = (117.8 – 118.6) / 118.6 = - 0.006745i￥– i$￥/$– S￥、$) / S￥/$greater than forward-spot exchange rate differential.Step 1: Since Akira decides to invest $5,000,000, so he borrow yen equivalent $5,000,000 x ¥118.6/$ = ¥593,000,000Akira’s obligation: ¥593,000,000 x (1 + 1.7%) = ¥603,081,000 Step 2: Sell yen for dollar at the spot market¥593,000,000 / ¥118.6/$ = $5,000,000 (dollar inflow)Step 3: invest in U.S. market$5,000,000 x (1 + 2.4%) = $5,120,000 (payoff)Step 4: sell dollar for yen at the forward market($5,120,000) x (¥117.8/$) = ¥603,136,000 (yen inflow)Akira’s net profit: ¥603,136,000 –¥603,081,000 = ¥55,0005. a. According to UIP, i CKR– i$ = (E(S) – S)/S7.5% - 3.5% = ((E(S) – 30.35)/30.35E[S] = (30.35 x 0.04) + 30.35 = 31.564b. i CKR– i$ = (E(S) – S)/S + risk premium7.5% - 3.5% = ((E(S) – 30.35)/30.35 + 2%E[S] = (30.35 x 0.02) + 30.35 = 30.957。

International Finance 国际金融Notes to the ans wers:1、All the terms can be found in the text.2、The discussions can be attained by reading the original text.Chapter 1Answers:II. T T F F F T TIII. 1. reserve currency 2. appreciate 3. was pegged to 4. deficit 5. fixed exchange rates 6. floating exchange rates 7. depreciate 8. market forcesIV. 1. Confidence in the ability of the U.S. to redeem dollars for gold began to fall as potential claims against the dollar increased and U.S. gold reserves fell.2.Under the fixed exchange rate system, the value of the dollar was tied to gold through itsconvertibility in to gold at the U.S. Treasury, and other nations’ currencies were tied to the dollar by the maintenance of a fixed rate of exchange.3.IMF has adjusted its role in the exchange rate system in view of the development of thesituation.4.After the collapse of the Bretton Woods System, the task of ―rigorous monitoring‖theexchange rate policy of member countries fell on the shoulder of IMF.5.Under normal conditions the stabilizing operations were sufficient to contain short-runfluctuations in a currency’s price within the required bounds of 1% of par value and thereby maintain a system of fixed exchange rates.Chapter 2Answers:I. liquid, turnover, due to, hedge, cross trading, electronic broking, outright forwards,Over-the-counter, futures and options, derivatives, remainder.II.. 1. The fundamental changes occurred in post-war world economy. The international flow of commodities, capital and labor is intensifying, thus leading to integration of international markets.1.Often referred to as ―financial institutions with a soul‖, credit unions are member-ownedcooperatives that offer checking accounts, savings accounts, credit cards, and consumer loans.2.If you think the price of gold will rise, you can buy a most simple kind of financial derivativewhich is called ―futures‖. If by that time the price really goes up, then you make a gain. But if you make a wrong guess and the price declines, then you suffer a loss.3.Financial derivatives are financial commodities deriving from such spot market products asinterest rate or bond, foreign exchange or foreign exchange rate and sto ck or stock indexes.There are mainly three types of derivatives: futures, options and swaps, each of which involves a mix of financial contracts.panies and investment funds are using basic currency futures and currency options, onesthat are regarded as traditional hedging products for investors who want to protect their international assets from sharp gains and declines in currency prices.Chapter 3Answers：II. 1. deposit accounts 2. securitization 3. Deregulation 4. consolidation 5. portfolio 6. thrift institutions 7. listing 8. liquidity 9. banking supervision 10. Credit riskIII. 1. Depository institutions 2. commercial banks 3. credit analysis 4. working capital 5. consolidation 6. financing 7. moral hazard 8. Bank supervision and regulation 9. Credit risk 10. Liquidity riskIV. 1. If a bank’s base rate was below money market rates, a customer could borrow from a bank and lend these funds to the money market, thus making a profit on the deal.2.Financing of international trade is one of the basic functions of a commercial bank. Not onlydoes it father deposits (demand, time and savings accounts), but it also grants loans.3.If you have a credit card, you buy a car, eat a dinner, take a trip,a nd even get a haircut bycharging the cost to your account.4.As the central bank and under the leadership of the State Council, the People’s Bank ofChina will formulate and implement monetary policies, execute supervision and control power over the banking industry.5.One of major function of the central bank is the supervision of the clearing mechanis m. Areliable clearing mechanis m which can settle inter-bank transaction with high efficiency is crucial to a well-operated financial system.Chapter 4 Ans wers:II. 1．integrity 2. pretext 3. released 4. produce 5. facilities 6. obliged 7. alleging 8. Claims 9. cleared 10. deliveryIII. 1. in favor of 2. consignment 3. undertaking, terms and conditions 4. cleared 5. regardless of 6. obliged to 7. undervalue arrangement 8. on the pretext of 9. refrain from 10. hinges onIV. 1. The objective of documentary credits is to facilitate international payment by making use of the financial expertise and credit worthiness of one or more banks.2.In compliance with your request, we have effected insurance on your behalf and debited youraccount with the premium in the amount of $1000.3.When an exporter is trading regularly with an importer, he will offer open account terms.4.Exporters usually insist on payment by cash in advance when they are trading with oldcustomers.5.Cash in advance means that the exporter is paid either when the importer places his order orwhen the goods are ready for shipment.Chapter 5.II．1. b 2. c 3. c 4. a 5. b 6. b 7. a 8. cIII. 1. guaranteed 2. without recourse 3. defaults 4. on the buyer’s account 5. is equivalent to 6. in question 7. devaluation 8. validity 9. discrepancy 10. inconsistent withChapter 6Answers:II. 1. open account, creditworthiness 2. demand 3. draw on, creditor 4. protest 5. schedule, discrepancies 6. acceptance 7. drawee 8. guranteedIII. 1. collecting bank 2. tenor 3. the proceeds 4. protest 5. deferred payment 6. presentation 7. the maturity date 8. a document of title 9. the shipping documents 10. transshipmentIV. 1. Documentary collection is a method by which the exporter authorizes the bank to collect money from the importer.2.When a draft is duly presented for acceptance or payment but the acceptance or paymentis refused, the draft is said to be dishonored.3.In the international money market, draft is a circulative and transferable instrument.Endorsement serves to transfer the title of a draft to the transferee.4.A clean bill of lading is favored by the buyer and the banks for financial settlementpurposes.5.Parcel post receipt is issued by the post office for goods sent by parcel post. It is both areceipt and evidence of dispatch and also the basis for claim and adjustment if there is any damage to or loss of parcels.Chapter 7II. financing, discounting, factoring, forfaiting, without recourse, accounts receivable, factor, trade obligations, promissory notes, trade receivables, specialized.III. 1. a cash flow disadvantage 2. without recourse 3. negotiable instruments 4. promissory notes 5. profit margin 6. at a discount, maturity, credit risk 7. A bill of exchange, A promissory noteIV. 1. When a bill is dishonored by non-acceptance or by non-payment, the holder then has an immediate right of recourse against the drawer and the endorsers.2.If a bill of lading is made out to bearer, it can be legally transferred without endorsement.3.The presenting bank should endeavor to ascertain the reasons non-payment ornon-acceptance and advise accordingly to the collecting bank.4.Any charges and expenses incurred by banks in connection with any action for protection o fthe goods will be for the account of the principal.5.Anyone who has a current account at a bank can use a cheque.Chapter EightStructure of the Foreign Exchange Market外汇市场的构成1. Key Terms1）foreign exchange：―Foreign exchange‖ refers t o money denominated in the currency of another nation or group of nations.2）payment“payment”is the transmission of an instruction to transfer value that results from a transaction in the economy.3）settlement―settlement‖ is the final and uncondit ional transfer of the value specified in a payment instruction.2. True or False1) true 2) true 3) true 4) true1)Tell the reasons why the dollar is the market's most widely tradedcurrency?key points: U.S.A economic background; the leadership of USD in the world economy ; the role it plays in investment , trade, etc.2)What kind of market is the foreign exchange market?Make reference to the following parts:（8.7 The Market Is Made Up of An International Network of Dealers）Chapter 9Instruments交易工具1. Key Terms1) spot transactionA spot transaction is a straightforward (or ―outright‖) exchange of one currency for another. The spot rate is the current market price, the benchmark price.Spot transactions do not require immediate settlement, or payment ―on the spot.‖ By convention, the settlement date, or ―value date,‖is the second business day after the ―deal date‖ (or ―trade date‖) on which the transaction is agreed to by the two traders. The two-day period provides ample time for the two parties to confirm the agreement and arrange the clearing and necessary debiting and crediting of bank accounts in various international locations.2) American termsThe phrase ―American terms‖means a direct quote from the point of view of someone located in the United States. For the dollar, that means that the rate is quoted in variable amounts of U.S. dollars and cents per one unit of foreign currency (e.g., $1.2270 per Euro).3) outright forward transactionAn outright forward transaction, like a spot transaction, is a straightforward single purchase/ sale of one currency for another. The only difference is that spot is settled, or delivered, on a value date no later than two business days after the deal date, while outright forward is settled on any pre-agreed date three or more business days after the deal date. Dealers use the term ―outright forward‖ to make clear that it is a single purchase or sale on a future date, and not part of an ―FX swap‖.4) FX swapAn FX swap has two separate legs settling on two different value dates, even though it is arranged as a single transaction and is recorded in the turnover statistics as a single transaction. The two counterparties agree to exchange two currencies at a particular rate on one date (the ―near date‖) and to reverse payments, almost always at a different rate, on a specified sub sequent date (the ―far date‖). Effectively, it is a spot transaction and an outright forward transaction going in opposite directions, or else two outright forwards with different settlement dates, and going in opposite directions. If both dates are less than one month from the deal date, it is a ―short-dated swap‖; if one or both dates are one month or more from the deal date, it is a ―forward swap.‖5) put-call parity―Put-call parity‖says that the price of a European put (or call) option can be deduced from the price of a European call (or put) option on the same currency, with the same strike price and expiration. When the strike price is the same as the forward rate (an ―at-the-money‖forward), the put and the call will be equal in value. When the strike price is not the same as the forward price, the difference between the value of the put and the value of the call will equal the difference in the present values of the two currencies.2. True or False1) true 2) true 3) true3. Cloze1) Traders in the market thus know that for any currency pair, if the basecurrency earns a higher interest rate than the terms currency, the currency will trade at a forward discount, or below the spot rate; and if the base currency earns a lower interest rate than the terms currency, the base currency will trade at a forward premium, or above the spot rate. Whichever side of the transaction the trader is on, the trader won't gain (or lose) from both the interest rate differential and the forward premium/discount. A trader who loses on the interest rate will earn the forward premium, and vice versa.2) A call option is the right, but not the obligation, to buy the underlyingcurrency, and a put option is the right, but not the obligation, to sellthe underlying currency. All currency option trades involve two sides—the purchase of one currency and the sale of another—so that a put to sell pounds sterling for dollars at a certain price is also a call to buy dollars for pounds sterling at that price. The purchased currency is the call side of the trade, and the sold currency is the put side of the trade. The party who purchases the option is the holder or buyer, and the party who creates the option is the seller or writer. The price at which the underlying currency may be bought or sold is the exercise , or strike, price. The option premium is the price of the option that the buyer pays to the writer. In exchange for paying the option premium up front, the buyer gains insurance against adverse movements in the underlying spot exchange rate while retaining the opportunity to benefit from favorable movements. The option writer, on the other hand, is exposed to unbounded risk—although the writer can (and typically does) seek to protect himself through hedging or offsetting transactions.4. Discussions1)What is a derivate financial instrument? Why is traded?2)Discuss the differences between forward and futures markets in foreigncurrency.3)What advantages do foreign currency futures have over foreigncurrency options?4)What is meant if an option is ―in the money‖, ―out of the money‖,or ―atthe money‖?5)What major international contracts are traded on the ChicagoMercantile Exchange ? Philadelphia Stock Exchange?Chapter 10Managing Risk in Foreign Exchange Trading外汇市场交易的风险管理1. Key Terms1) Market riskMarket risk, in simplest terms, is price risk, or ―exposure to (adverse)price change.‖ For a dealer in foreign exchange, two major elements of market risk are exchange rate risk and interest rate risk—that is, risks of adverse change in a currency rate or in an interest rate.2) VARVAR estimates the potential loss from market risk across an entire portfolio, using probability concepts. It seeks to identify the fundamental risks that the portfolio contains, so that the portfolio can be decomposed into underlying risk factors that can be quantified and managed. Employing standard statistical techniques widely used in other fields, and based in part on past experience, VAR can be used to estimate the daily statistical variance, or standard deviation, or volatility, of the entire portfolio. On the basis of that estimate of variance, it is possible to estimate the expected loss from adverse price movements with a specified probability over a particular period of time (usually a day).3) credit riskCredit risk, inherent in all banking activities, arises from the possibility that the counterparty to a contract cannot or will not make the agreed payment at maturity. When an institution provides credit, whatever the form, it expects to be repaid. When a bank or other dealing institution enters a foreign exchange contract, it faces a risk that the counterparty will not perform according to the provisions of the contract. Between the time of the deal and the time of thesettlement, be it a matter of hours, days, or months, there is an extension of credit by both parties and an acceptance of credit risk by the banks or other financial institutions involved. As in the case of market risk, credit risk is one of the fundamental risks to be monitored and controlled in foreign exchange trading.4) legal risksThere are legal risks, or the risk of loss that a contract cannot be enforced, which may occur, for example, because the counterparty is not legally capable of making the binding agreement, or because of insufficient documentation or a contract in conflict with statutes or regulatory policy.2. True or False1)True 2) true3. Translation1) Broadly speaking, the risks in trading foreign exchange are the same asthose in marketing other financial products. These risks can be categorized and subdivided in any number of ways, depending on the particular focus desired and the degree of detail sought. Here, the focus is on two of the basic categories of risk—market risk and credit risk (including settlement risk and sovereign risk)—as they apply to foreign exchange trading. Note is also taken of some other important risks in foreign exchange trading—liquidity risk, legal risk, and operational risk2) It was noted that foreign exchange trading is subject to a particular form ofcredit risk known as settlement risk or Herstatt risk, which stems in part from the fact that the two legs of a foreign exchange transaction are often settled in two different time zones, with different business hours. Also noted was the fact that market participants and central banks have undertaken considerable initiatives in recent years to reduce Herstatt risk.4. Discussions2)Discuss the way how V AR works in measuring and managing marketrisk?3)Why are banks so interested in political or country risk?4)Discuss other forms of risks which you know in foreign exchange. Chapter 11The Determination of Exchange Rates汇率的决定1. Key Terms1) PPPPurchasing Power Parity (PPP) theory holds that in the long run, exchange rates will adjust to equalize the relative purchasing power of currencies. This concept follows from the law of one price, which holds that in competitive markets, identical goods will sell for identical prices when valued in the same currency.2) the law of one priceThe law of one price relates to an individual product. A generalization of that law is the absolute version of PPP, the proposition that exchange rates will equate nations' overall price levels.3) FEER―fundamental equilibrium exchange rate,‖ or FEER,envisaged as the equilibrium exchange rate that would reconcile a nation's internal and external balance. In that system, each country would commit itself to a macroeconomicstrategy designed to lead, in the medium term, to ―internal balance‖—defined as unemployment at the natural rate and minimal inflation—and to ―external balance‖—defined as achieving the targeted current account balance. Each country would be committed to holding its exchange rate within a band or target zone around the FEER, or the level needed to reconcile internal and external balance during the intervening adjustment period.4) monetary approachThe monetary approach to exchange rate determination is based on the proposition that exchange rates are established through the process of balancing the total supply of, and the total demand for, the national money in each nation. The premise is that the supply of money can be controlled by the nation's monetary authorities, and that the demand for money has a stable and predictable linkage to a few key variables, including an inverse relationship to the interest rate—that is, the higher the interest rate, the smaller the demand for money.5) portfolio balance approachThe portfolio balance approach takes a shorter-term view of exchange rates and broadens the focus from the demand and supply conditions for money to take account of the demand and supply conditions for other financial assets as well. Unlike the monetary approach, the portfolio balance approach assumes that domestic and foreign bonds are not perfect substitutes. According to the portfolio balance theory in its simplest form, firms and individuals balance their portfolios among domestic money, domestic bonds, and foreign currency bonds, and they modify their portfolios as conditions change. It is the process of equilibrating the total demand for, and supply of, financial assets in each country that determines the exchange rate.2. True or False1) true 2) true3. Cloze1）PPP is based in part on some unrealistic assumptions: that goods are identical; that all goods are tradable; that there are no transportationcosts, information gaps, taxes, tariffs, or restrictions of trade; and—implicitly and importantly—that exchange rates are influenced only byrelative inflation rates. But contrary to the implicit PPP assumption,exchange rates also can change for reasons other than differences ininflation rates. Real exchange rates can and do change significantly overtime, because of such things as major shifts in productivitygrowth, advances in technology, shifts in factor supplies, changes inmarket structure, commodity shocks, shortage, and booms.2）Each individual and firm chooses a portfolio to suit its needs, based on a variety of considerations—the holder's wealth and tastes, the level ofdomestic and foreign interest rates, expectations of future inflation,interest rates, and so on. Any significant change in the underlying factorswill cause the holder to adjust his portfolio and seek a new equilibrium.These actions to balance portfolios will influence exchange rates.4. Discussions1）How does the purchasing power parity work?2）Describe and discuss one model for forecasting foreign exchange rates.3）Make commends on how good are the various approaches mentioned in the chapter.4）Central banks occasionally intervene in foreign exchange markets. Discuss the purpose of such intervention. How effective is intervention?Chapter 12The Financial Markets金融市场1. Key Terms1）money marketThe money market is really a market for short-term credit, or the option to use someone else's money for a period of time in return for the payment of interest. The money market helps the participants in the economic process cope with routine financial uncertainties. It assists in bridging the differences in the timing of payments and receipts that arise in a market economy.2）capital marketMarkets dealing in instruments with maturities that exceed one year are often referred to as capital markets.3）primary marketThe term ―primary market‖ applies to the original issuance of a credit market instrument. There are a variety of techniques for such sales, including auctions, posting of rates, direct placement, and active customer contacts by a salesperson specializing in the instrument4） secondary marketOnce a debt instrument has been issued, the purchaser may be able to resell it before maturity in a ―secondary market.‖ Again, a number of techniques are available for bringing together potential buyers and sellers of existing debt instruments. They include various types of formal exchanges, informal telephone dealer markets, and electronic trading through bids and offers on computer screens. Often, the same firms that provide primary marketing services help to create or ―make‖ secondary markets.5）RPsIn addition to making outright purchases and sales in the secondary market, entities with money to invest for a brief period can acquire a security temporarily, and holders of debt instruments can borrow short term by selling securities temporarily. These two types of transactions are repurchase agree-ments (RPs) and reverse RPs,respectively. In the wholesale market, banks and government securities dealers offer RPs at competitive rates of return by selling securities under contracts providing for their repurchase from one day to several months later6）BAs 7）CDs (reference to 13.1)8） EurodollarEurodollars are U.S. dollar deposits at banking offices in a country other than the United States.9） EurobankEurobanks—banks dealing in Eurodollar or some other nonlocal currency deposits, including foreign branches of U.S. banks— originally held deposits almost exclusively in Europe, primarily London. While most such deposits are still held in Europe, they are also held in such places as the Bahamas, Bahrain, Canada, the Cayman Islands, Hong Kong, Singapore, and Tokyo, as well as other parts of the world.10）LIBOR (reference to 13.2.2 Certificates of Deposit)London inter-bank offer rate11）mortgage-backed securities12）Eurobond market (details make reference to13.3.3 )The Eurobond market, centered in London, is an offshore market in intermediate- and long-term debt issues. It serves as a source of capital for multinational corporations and for foreign governments. It developed after the United States instituted the interest equalization tax in 1963 to stem capital outflows inspired by relatively low U.S. interest rates.2. True or False1) true 2) true 3) true3. Discussions1) Describe the characteristics of Interest Rate Swap and the role of it in thebank-related financial market.2) What risks are encountered in the swaps markets?3) Discuss one or two specific examples of derivative products and their use.4. Translations1) Markets dealing in instruments with maturities that exceed one year are often referred to as capital markets, since credit to finance investments in new capital would generally be needed for more than one year. The time division is arbitrary. A long-term project can be started with short-term credit, with additional instruments may need to be renewed before a project is completed. Debt instruments that differ in maturity share other characteristics. Hence, the term ―capital market‖ could be –and occasionally is applied to some shorter maturity transactions.2) The secondary market for Treasure securities consists of a network of dealers, brokers, and investors who effect transactions either by telephone or electronically. Telephone trades are generally between dealers and their customers. Electronics trading is arranged through screen-based systems provided by some of the dealers to their customers. It allows selected trades to take place without a conversation. When dealers trade with each other, they generally use brokers. Brokers provide information on screen, but the final trades are made bytelephone.Chapter 13Concepts of Financial Assets Value金融资产价值的概念1. Key Terms1) absolute measure of valueAn absolute measure of value is used when one must compare it to a nominal amount: purchase price, amount to invest, target sum of money to raise2) relative measure of valueA relative measure of rate of return is more convenient to use when one wishes to compare one financial asset to a set of numerous alternative assets. A rate of return is the most commonly used relative measure of value.3) discountingFuture benefits must be discounted (or converted) to their present (or today's) value, before they are summed. Discounting is part of the study of time value of money, or actuarial mathematics, and a complete treatment of it can be found in specialized textbook.4) time value of moneyTime value of money studies how amounts of money are made equivalent over time. Converting amounts today into their future equivalent consists in adding interest to principal, i.e. compounding. Converting amounts in the future into today's equivalent consists of charging an interest, i.e. discounting. Thus, discounting is the exact inverse of compounding.5) FV 6) PV 7) annuity8) short term securitiesShort term securities (i.e. securities with maturity less than one year) are sold at a discount (i.e. nominal value less the interest to be earned over the remaining number of days to maturity). There is no coupon, and no additional benefits such as conversion right, but there may be a penalty for early redemption in the case of some bank certificates of deposit.9) P/E ratio (make reference to 15.5.3 --Earnings Multiple or P/E Ratio)Another approach which is used as a short-cut by a large number of investors, is the earnings multiple. It is sometimes referred to as earningsmultiplier, and it is most commonly known as price-to-earnings or P/E ratio. In many instances, the approach, rather than being an oversimplification, can be an improvement over the previous format. In its most common presentation, the idea is that the price P of a share should be a multiple m of its earnings per share E. The multiple m is an industry average because it is assumed that all companies in an industry face similar marketing, technological and resource challenges, and thus, should have similar organizational and production patterns.10) intrinsic valueintrinsic value, or difference between market price of the underlying stock and strike price (which is also known as exercise price because it is the price at which an option holder can buy from or sell to the option writer the underlying stock through the options exchange)。

Chapter1 balance of paymentsBalance of Payments Accounting1Balance of paymentsa)is defined as the statistical record of a country’s internationaltransactions over a certain period of time presented in the form ofa double-entry bookkeepingb)provides detailed information concerning the demand and supply of acountry’s currencyc)can be used to evaluate the performance of a country ininternational economic competitiond)all of the aboveAnswer: d2Generally speaking, any transaction that results in a receipt from foreignersa)Will be recorded as a debit, with a negative sign, in the U.S.balance of paymentsb)Will be recorded as a debit, with a positive sign, in the U.S.balance of paymentsc)Will be recorded as a credit, with a negative sign, in the U.S.balance of paymentsd)Will be recorded as a credit, with a positive sign, in the U.S.balance of paymentsAnswer d3 Generally speaking, any transaction that results in a payment toforeignerse)Will be recorded as a debit, with a negative sign, in the U.S.balance of paymentsf)Will be recorded as a debit, with a positive sign, in the U.S.balance of paymentsg)Will be recorded as a credit, with a negative sign, in the U.S.balance of paymentsh)Will be recorded as a credit, with a positive sign, in the U.S.balance of paymentsAnswer a)4 Suppose the McDonalds Corporation imports 100 tons of Canadian beef, paying for it by transferring the funds to a New York bank account kept by the Canadian Beef Conglomerate.i)Payment by McDonalds will be recorded as a debitj)The deposit of the funds by the seller will be recorded as a debit k)Payment by McDonalds will be recorded as a creditl)The deposit of the funds by the buyer will be creditAnswer: a5Since the balance of payments is presented as a system of double-entry bookkeeping,a)Every credit in the account is balanced by a matching debitb)Every debit in the account is balanced by a matching creditc)a) and b) are both true6 A country’s international transactions can be grouped into thefollowing three main types:a)current account, medium term account, and long term capitalaccountb)current account, long term capital account, and officialreserve accountc)current account, capital account, and official reserve accountd)capital account, official reserve account, trade account Answer: c7Invisible trade refers to:a)services that avoid tax paymentsb)underground economyc)legal, consulting, and engineering servicesd)tourist expenditures, onlyAnswer: c8The current account is divided into four finer categories:a)Merchandise trade, services, income, and statisticaldiscrepancy.b)Merchandise trade, services, income, and unilateral transfersc)Merchandise trade, services, portfolio investment, andunilateral transfersd)Merchandise trade, services, factor income, and direct9Factor incomea)Consists largely of interest, dividends, and other income onforeign investments.b)Is a theoretical construct of the factors of production, land,labor, capital, and entrepreneurial ability.c)Is generally a very minor part of national income accounting,smaller than the statistical discrepancy.d)None of the aboveAnswer: aUSE THE FOLLOWING INFORMATION TO ANSWER THE NEXT TWO QUESTIONS10 The entries in the “current account” and the “capital account”, combined together, can be outlined (in alphabetic order) as:(i)- direct investment(ii)- factor income(iii)- merchandise (iv)- official transfer (v)- other capital (vi)- portfolio investment(vii)- private transfer(viii)- services11Current account includesa)(i), (ii), and (iii)b)(ii), (iii), and (vii)c)(iv), (v), and (vii)d)(i), (v), and (vi) Answer: ba)(i), (ii), and (iii)b)(ii), (iii), and (vii)c)(iv), (v), and (vii)d)(i), (v), and (vi)Answer: d13The difference between Foreign Direct Investment and Portfolio Investment is that:a)Portfolio Investment mostly represents the sale and purchase offoreign financial assets such as stocks and bonds that do notinvolve a transfer of control.b)Foreign Direct Investment mostly represents the sale and purchaseof foreign financial assets such as stocks whereas PortfolioInvestment mostly involves the sales and purchase of foreign bonds.c)Foreign direct investment is about buying land and buildingfactories, whereas portfolio investment is about buying stocks andbonds.d)All of the aboveAnswer: a14In the latter half of the 1980s, with a strong yen, Japanese firmsa)Faced difficulty exportingb)Could better afford to acquire U.S. assets that had become lessexpensive in terms of yen.c)Financed a sharp increase in Japanese FDI in the United StatesAnswer: d15International portfolio investments have boomed in recent years, as a result ofa)A depreciating U.S. dollarb)Increased gasoline and other commodity prices.c)The general relaxation of capital controls and regulation in manycountriesd)None of the aboveAnswer: cAnswer: c)16The capital account measuresa)The sum of U.S. sales of assets to foreigners and U.S. purchases offoreign assets.b)The difference between U.S. sales of assets to foreigners and U.S.purchases of foreign assets.c)The difference between U.S. sales of manufactured goods toforeigners and U.S. purchases of foreign products.d)None of the aboveAnswer: b) page 6417When Honda, a Japanese auto maker, built a factory in Ohio,a)It was engaged in foreign direct investmentb)It was engaged in portfolio investmentc)It was engaged in a cross-border acquisitionAnswer: a) page 64.18The capital account may be divided into three categories:a)Cross-border mergers and acquisitions, portfolio investment, andother investmentb)Direct investment, portfolio investment, and Cross-border mergersand acquisitionsc)Direct investment, mergers and acquisitions, and other investmentd)Direct investment, portfolio investment, and other investment Answer: d)19When Nestlé, a Swiss firm, bought the American firm Carnation, it was engaged in foreign direct investment. If Nestlé had only bought a non-controlling number of shares of the firma)Nestlé would have been engaged in portfolio investmentb)Nestlé would have been engaged in a cross-border acquisitionc)It would depend if they bought the shares from an American or aCanadiand)None of the above.Answer: a)20Foreign direct investment (FDI) occursa)when an investor acquires a measure of control of a foreignbusinessb)when there is an acquisition, by a foreign entity in the U.S., of10 percent or more of the voting shares of a businessinvolve a transfer of controld)a and bAnswer: d21Statistical discrepancy, which by definition represents errors and omissionsa)Cannot be calculated directlyb)Is calculated by taking into account the balance-of-paymentsidentityc)Probably has some elements that are honest mistakes, it can’t allbe money laundering and drugs.d)All of the aboveAnswer: d)22The statistical discrepancy in the balance-of-payments accountsa)Arise since recordings of payments and receipts are done atdifferent times, in different places, possibly using differentmethods.b)Arise since some transactions (illegal transactio ns?) occur “offthe books”.c)Represents omitted and misrecorded transactions.d)All of the aboveAnswer: d)23Regarding the statistical discrepancy in the balance-of-payments accountsresponsible for the discrepancy.b)The sum of the balance on the capital account and the statisticaldiscrepancy is very close to the balance of the current account in magnitude.c)It tends to be positive one year and negative in others, so it’ssafe to ignore itd)a) and b)Answer: d)24When a country must make a net payment to foreigners because of a balance-of-payments deficit, the central bank of the countrya)Should do nothingb)Should run down its official reserve assets (e.g. gold, foreignexchanges, and SDRs)c)Should borrow anew from foreign central banks.d)b) or c) will workAnswer: d)25Continued U.S. trade deficits coupled with foreigners’ desire to diversify their currency holdings away from U.S. dollarsa)could further diminish the position of the dollar as the dominantreserve currencyb)could affect the value of U.S. dollar (e.g. through the currencydiversification decisions of Asian central banks)c)Could lend steam to the emergence of the euro as a credible reserved)All of the aboveAnswer: d26Currently, international reserve assets are comprised ofa)gold, platinum, foreign exchanges, and special drawing rights (SDRs)b)gold, foreign exchanges, special drawing rights (SDRs), and reservepositions in the International Monetary Fund (IMF)c)gold, diamonds, foreign exchanges, and special drawing rights (SDRs)d)reserve positions in the International Monetary Fund (IMF), only Answer: b27International reserve assets include “foreign exchanges”. These area)Special Drawing Rights (SDRs) at the IMFb)reserve positions in the International Monetary Fund (IMF)c)Foreign currency held by a country’s central bankd)None of the aboveAnswer: c28The most important international reserve asset, comprising 94 percent of the total reserve assets held by IMF member countries isa)Goldb)Foreign exchangesc)Special Drawing Rights (SDRs)d)Reserve positions in the International Monetary Fund (IMF)Answer: b29The vast majority of the foreign-exchange reserves held by centrala)Local currenciesb)U.S. dollarsc)Yend)EuroAnswer: b30The U.S. Trade Deficita)Is a capital account surplusb)Is a current account deficitc)Is both a capital account surplus and a current account deficitd)None of the aboveAnswer: c31Over the last several years the U.S. has run persistenta)Balance-of-payments deficitsb)Balance-of-payments surplusesc)Current Account deficitsd)Capital Account deficitsAnswer: c32More important than he absolute size of a country’s balance-of-payments disequilibriuma)is the nature and cause of the disequilibriumb)is whether it is a trade surplus or deficitc)is whether the local government is mercantilist or notd)Nothing is more important than he absolute size of a country’sAnswer: aThe Relationship between Balance of Payments and National Income Accounting For questions in this section, the notation isY = GNP = national incomeC = consumptionI = private investmentG = government spendingX = exportsM = imports33National income, or Gross National Product is given by:a)GNP = Y = C + I + G + X + Mb)GNP = Y = C + I + G + X – Mc)GNP = I = C + Y + G + X – Md)GNP = Y = C + I + X + M – GAnswer: b)34Which of the following is a true statement?a)BCA ≡ X – Mb)BKA ≡ X – Mc)BKA –BCA ≡ X – Md)BKA ≡ X – MAnswer a)35There is an intimate relationship between a country’s BCA and how the country finances its domestic investment and pays for government+ (T – G). Given this, which of the following is a true statement?a)If (S –I) < 0, it implies that a country’s domestic savings isinsufficient to finance domestic investment.b) If (T –G) < 0, it implies that a country’s tax revenue isinsufficient to finance government spendingc)both a) and b) are trued)none of the aboveAnswer c)36There is an intimate relationship between a country’s B CA and how the country finances its domestic investment and pays for governmentexpenditures. This relationship is given by BCA ≡ X –M ≡ (S – I) + (T – G). Given this, which of the following is a true statement?a)If (S –I) < 0, it implies that a country’s domestic savings isinsufficient to finance domestic investment.b) If (T –G) < 0, it implies that a country’s tax revenue isinsufficient to finance government spendingc)when BCA is negative, it implies that government budget deficitsan/or part of domestic investment are being finance with foreign-controlled capitald)all of the above are trueAnswer d)37There is an intimate relationship between a country’s BCA and how the country finances its domestic investment and pays for government+ (T – G). Given this, in order for a country to reduce a BCA deficit, which of the following must occur?a)For a given level of S and I, the government budget deficit (T – G)must be reducedb)For a given level of I and (T – G), S must be increasedc)For a given level of S and (T – G), I must falld)All of the above would work to reduce a BCA deficitAnswer d)Explain how each of the following transactions will be classified and recorded in the debit and credit of the U.S. balance of payments:(1) A Japanese insurance company purchases U.S. Treasury bonds and paysout of its bank account kept in New York City.(2) A U.S. citizen consumes a meal at a restaurant in Paris and payswith her American Express card.(3) A Indian immigrant living in Los Angeles sends a check drawn on hisL.A. bank account as a gift to his parents living in Bombay.(4) A U.S. computer programmer is hired by a British company for consulting andgets paid from the U.S. bank account maintained by the British company.In contrast to the U.S., Japan has realized continuous current account surpluses. What could be the main causes for these surpluses? Is it desirable to have continuous current account surpluses?。

INTERNATIONAL FINANCEAssignment Problems (5) Name: Student#: I. Choose the correct answer for the following questions (only ONE correct answer) (3 credits for each question, total credits 3 x 20 = 60)1. When the supply of and demand for a foreign exchange in the foreign exchange market are exactly the same, the exchange rate is the __________.A. real exchange rateB. effective exchange rateC. equilibrium exchange rateD. cross exchange rate2. An increase in the demand for French goods and services will __________.A. induce a rightward shift in the demand for euroB. induce a leftward shift in the demand for euroC. result in a rightward movement along the demand curve for euroD. result in a leftward movement along the demand curve for euro3. If U.S. demand for Japanese goods increases and Japan’s demand for U.S. products also rises at the same time, which of the following can you conclude in this situation?A. The U.S. dollar will appreciate against the yen.B. The U.S. dollar will depreciate against the yen.C. The U.S. dollar will not change relative to the yen.D. The U.S. dollar may appreciate, depreciate, or remain unchanged against theyen.4. If the price of a pair of Nike sneakers costs $85 in U.S, and the price of the same sneakers is €80 in Paris, the spot rate is $1.35 per euro, the euro __________.A. is correctly valued according to PPPB. is correctly valued according to relative PPPC. is undervalued according to PPPD. is overvalued according to PPP5. If the expected exchange rate E (S B/A) according to the relative purchasing power parity is lower than the spot exchange rate (S B/A), we may conclude that __________.A. country B is expected to run huge BOP surplus with country AB. country A’s interest rate is going to be lower than that of country B’sC. the expected inflation rate in country A is higher than the expected inflation rate in country BD. the expected inflation rate in country A is lower than the expected inflation rate in country B6. Assume that PPP holds in the long run. If the price of a tradable good is $20 in theU.S. and 100 pesos in Mexico; and the exchange rate is 7 pesos/$ right now, which of the following changes might we expect in the future?A. an increase in the price of the good in the U.SB. a decrease in the price of the good in MexicoC. an appreciation of the peso in nominal termsD. a depreciation of the peso in nominal terms7. Which basket of goods would be most likely to exhibit absolute purchasing powerparity?A. Highly tradable commodities, such as wheatB. The goods in the Consumer Price indexC. Specialized luxury goods, which are subject to different tax rates across countriesD. Locally produced goods, such as transportation services, which are not easily traded8. The absolute purchasing power parity says that the exchange rate between the two currencies should be determined by the __________ .A. relative inflation rate of the two currenciesB. relative price level of the two countriesC. relative interest rate of the two currenciesD. relative money supply of the two countries9. According to the relative PPP, if country A’s inflation rate is higher than country B’s inflation rate by 3%, __________.A. country A’s currency should depreciate against country B’s currency by 3%B. country A’s currency should appreciate against country B’s currency by 3%C. it is hard to say whether country A’s currency should appreciate or depreciate against country B’s currency. The exchange rate is influenced by many factorsD. none of the above is true10. If the law of one price holds for a particular good, we may conclude that __________.A. there is no trade barriers for the good among the different nationsB. the price of the good is the same ignoring the other expensesC. arbitrage for the good does not existD. all of the above are true11. An investor borrows money in one market, sells the borrowed money on the spot market, invests the proceeds of the sale in another place and simultaneously buys back the borrowed currency on the forward market. This is called __________.A. uncovered interest arbitrageB. covered interest arbitrageC. triangular arbitrageD. spatial arbitrage12. Real return equalization across countries on similar financial instruments is called __________.A. interest rate parityB. uncovered interest parityC. forward parityD. real interest parity13. In which of the following situations would a speculator wish to sell foreign currency on the forward market?A. If E[S1d/f] < F1d/fB. If E[S1d/f] > F1d/fC. If E[S1d/f] = F1d/fD. If E[S1d/f] = 1/F1d/f14. According to IRP, if the interest rate in country A is higher than that in country B, the forward exchange rate, defined as F1A/B is expected to be __________.A. lower than the spot rate S0A/BB. the same as the spot rate S0A/BC. higher than the spot rate S0A/BD. necessary the same as the future spot rate S1A/B15. For arbitrage opportunities to be practicable, __________.A. arbitragers must have instant access to quotesB. arbitragers must have instant access to executionsC. arbitragers must be able to execute the transactions without an initial sum of money relying on their bank’s credit standingD. All of the above must be true.16. The __________ states that the forward exchange rate quoted at time 0 for delivery at time t is equal to what the spot rate is expected to be at time t.A. interest rate parityB. uncovered interest parityC. forward parityD. real interest parity17. Assume expected value of the U.S. dollar in the future is lower than that now compared to the value of the Japanese yen. The U.S. inflation rate must be higher than Japan’s inflation rate according to __________.A. relative PPPB. Fisher equationC. International Fisher relationD. IRP18. According to covered interest arbitrage if an investor purchases a five-year U.S. bond that has an annual interest rate of 5% rather than a comparable British bond that has an annual interest rate of 6%, then the investor must be expecting the __________ to __________ at a rate at least of 1% per year over the next 5 years.A. British pound; appreciateB. British pound; revalueC. U.S. dollar; appreciateD. U.S. dollar; depreciate19. Covered interest arbitrage moves the market __________ equilibrium because __________.A. toward; investors are now more willing to invest in risky securitiesB. toward; purchasing a currency on the spot market and selling in the forward market narrows the differential between the twoC. away from; purchasing a currency on the spot market and selling in the forward market increases the differential between the twoD. away from; demand for the stronger currency forces up the interest rates on the weaker security20. If the forward exchange rate is an unbiased predictor of the expected future spot rate, which of the following is NOT true?A. The future spot rate will actually be equal to what the forward rate predictsB. The forward premium or discount reflects the expected change in the spot exchange rate.C. Speculative activity ensures that the forward rate does not diverge too far from the market’s consensus expectation.D. All of the above are true.II. Problems (40 credits)1.The Argentine peso was fixed through a currency board at Ps1.00/$ throughout the 1990s. In January 2002 the Argentine peso was floated. On January 29, 2003, it was trading at Ps3.20/$. During that one year period Argentina’s inflation rate was 20% on an annualized basis. Inflation in the United States during that same period was2.2% annualized. (10 credits)a. What should have been the exchange rate in January 2003 if purchasing power parity held?b. By what percentage was the Argentine peso undervalued on an annualized basis?2. Assume that the interest rate paid by an American borrower on a ten-year foreign bond is 10% if the bond is sold in Denmark and 7% if the bond is sold in the Netherland. Will the expected inflation rate in the Netherlands likely be higher than the expected inflation rate in Denmark? Will the Danish kroner be expected to increase in value against the Dutch guilder? Explain your answer. (5 credits)3. Suppose S = $1.25/₤ and the 1-year forward rate is F = $1.20/₤. The real interest rate on a riskless government security is 2 percent in both England and the United States. The U.S. inflation rate is 5 percent. (5 credits)a. What is England’s nominal required rate of return on riskless government securities?b. What is England’s inflation rate if the equilibrium relationships hold?4. Akira Numata, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $5,000,000 or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest rate quotes: (12 credits)Spot rate: ¥118.60/$ 180-day forward rate: ¥117.80/$ 180-day dollar 4.8% per yearinterest rate180-day yen 3.4% per yearinterest rateThe bank does not calculate transaction costs on any individual transaction because these costs are part of the overall operating budget of the arbitrage department. Plot the given information on the covered interest parity grid. Explain and illustrate the specific steps Akira must take to make a covered interest arbitrage profit.5. On a particular day, the spot rate between Czech koruna (CKR) and the U.S. dollar is CKR30.35/$, while the interest rate on a one-year financial instrument in Czech is7.5% and 3.5% in U.S. (8 credits)a. What is your expected spot exchange rate a year later?b. You’re concerned your investment in the Czech Republic because of the economic uncertainty in that country. When you expect the future value of the koruna, you require a risk premium of 2%. What is the expected future spot rate supposed to be?Answers to Assignment Problems (5)Part II1. a. inflation differential (20% -2.2%) = 17.8%U.S. should have appreciated by 17.8%Implied exchange rate 1(1 + 17.8%) = Ps1.178/$b. (1.178 – 3.2 ) / 3.2 = -63.19%2. a. According to international Fisher equation: (1 + i d) / (1 + i f) = (1 + E[πd]) / (1 + E[πf])i d: interest rate in Denmarki f: interest rate in Netherlandπd: Danish inflation rateπf Dutch inflation rateSince (1 + i d) / (1 + i f) = (1 +10%)/(1 + 7%) > 0So, (1 + E[πd]) / (1 + E[πf]) >0, which means the expected inflation rate in Denmark would be greater than that in Netherland.b. If Danish inflation is higher than Dutch inflation, Danish kroner will be expected to decrease in value against the Dutch guilder. (relative PPP theory)3. a. U.S. nominal interest rate 2% + 5% = 7% (Fisher equation)7% - U.K.i = (1.2 – 1.25)/1.25 (IRP)U.K.i = 7% + 4% = 11%b. 11% - 2% = 9% (Fisher equation)4. a. According to IRP:i￥– i$ = 4.8%/2 – 3.4%/2 = 0.7% = 0.007(F￥/$– S￥、$) / S￥/$ = (117.8 – 118.6) / 118.6 = - 0.006745i￥– i$￥/$– S￥、$) / S￥/$United StatesA -0.007b. Akira should invest his money in the U.S., because interest rate differential is greater than forward-spot exchange rate differential.Step 1: Since Akira decides to invest $5,000,000, so he borrow yen equivalent $5,000,000 x ¥118.6/$ = ¥593,000,000Akira’s obligation: ¥593,000,000 x (1 + 1.7%) = ¥603,081,000 Step 2: Sell yen for dollar at the spot market¥593,000,000 / ¥118.6/$ = $5,000,000 (dollar inflow)Step 3: invest in U.S. market$5,000,000 x (1 + 2.4%) = $5,120,000 (payoff)Step 4: sell dollar for yen at the forward market($5,120,000) x (¥117.8/$) = ¥603,136,000 (yen inflow) Akira’s net profit: ¥603,136,000 –¥603,081,000 = ¥55,000 5. a. According to UIP, i CKR– i$ = (E(S) – S)/S7.5% - 3.5% = ((E(S) – 30.35)/30.35E[S] = (30.35 x 0.04) + 30.35 = 31.564b. i CKR– i$ = (E(S) – S)/S + risk premium7.5% - 3.5% = ((E(S) – 30.35)/30.35 + 2%E[S] = (30.35 x 0.02) + 30.35 = 30.957。

国际金融中英文版Chapter 2:Payments among NationsSingle-Choice Questions1. A country’s balance of payments records：一个国家的国际收支平衡记录了 Ba.The value of all exports of goods and services from that country for a periodof time.b.All flows of value between that c ountry’s residents and residents of the restof the world during a period of time。

在一定时间段里，一个国家居民的资产和其它世界居民资产的流动c.All flows of financial assets that cross that country’s borders during a periodof time.d.All flows of goods into that country during a period of time。

2.3. A credit item in the balance of payments is: 在国际收支平衡里的贷项是 Aa.An item for which the country must be paid。

一个国家必须收取的条款b.An item for which the country must pay。

c.Any imported item。

d.An item that creates a monetary claim owed to a foreigner。

4.Every international exchange of value is entered into the balance—of—paymentsaccounts __________ time(s）。

Part Ⅰ.Decide whether each of the following statements is true or false (10%)每题1分，答错不扣分分，答错不扣分1. 1. If If If perfect perfect perfect markets markets markets existed, existed, existed, resources resources resources would would would be be be more more more mobile mobile mobile and and and could could could therefore therefore therefore be transferred be transferred to to those those countries more willing to pay a high price for them. ( T ) 2. The forward contract can h edge hedge hedge future receivables future receivables or or payables payables payables in in in foreign currencies to foreign currencies to i nsulate insulate insulate the the the firm firm against exchange rate risk. ( T ) 3. The primary objective of the multinational corporation is still the same primary objective of any firm, i.e., to maximize shareholder wealth. ( T ) 4. A low inflation rate tends to increase imports and decrease exports, thereby decreasing the current account deficit, other things equal. ( F ) 5. A capital account deficit reflects a net sale of the home currency in exchange for other currencies. This places up ward pressure on that home currency’s value. ( F ) 6. The theory of comparative advantage implies that countries should specialize in production, thereby relying on other countries for some products. ( T ) 7. 7. Covered Covered Covered interest interest interest arbitrage arbitrage arbitrage is is is plausible plausible plausible when when when the the the forward forward forward premium premium premium reflect reflect reflect the the the interest interest interest rate rate rate differential differential between two countries specified by the interest rate parity formula. ( F ) 8． The total impact of transaction exposure is on the overall value of the firm. ( F ) 9. A put option is an option to sell-by the buyer of the option-a stated number of units of the underlying instrument at a specified price per unit during a specified period. ( T ) 10. Futures must be marked-to-market. Options are not. ( T ) Part Ⅱ:Cloze (20%)每题2分，答错不扣分分，答错不扣分1. If inflation in a foreign country differs from inflation in the home country, the exchange rate will adjust to maintain equal( purchasing power ）2. Speculators who expect a currency to ( appreciate ) could purchase currency futures contracts for that currency. 3. 3. Covered Covered Covered interest interest interest arbitrage arbitrage arbitrage involves involves involves the short-term the short-term investment investment in in in a a a foreign foreign foreign currency currency currency that that that is covered is covered by by a a ( forward contract ) to sell that currency when the investment matures. 4. （ Appreciation/ Revalue ）of RMB reduces inflows since the foreign demand for our goods is reduced and foreign competition is increased. 5. ( PPP ) suggests a relationship between the inflation differential of two countries and the percentage change in the spot exchange rate over time. 6. 6. IFE IFE IFE is is is based based based on on on nominal nominal nominal interest interest interest rate rate rate ( ( differentials ), ), which which which are are are influenced influenced influenced by by by expected expected inflation. 7. Transaction exposure is a subset of economic exposure. Economic exposure includes any form by which the firm’s ( ( value ) will be affected. 8. 8. The The The option option option writer writer writer is is is obligated obligated obligated to to to buy buy buy the the the underlying underlying underlying commodity commodity commodity at at at a a a stated stated stated price price price if if if a a a ( ( put option ) is exercised 9. There are three types of long-term international bonds. They are Global bonds , ( eurobonds ) and ( foreign bonds ). 10. 10. Any Any Any good good good secondary secondary secondary market market market for for for finance finance finance instruments instruments instruments must must must have have have an an an efficient efficient efficient clearing clearing clearing system. system. system. Most Most Eurobonds are cleared through either ( Euroclear ) or Cedel. Part Ⅲ :Questions and Calculations (60%)过程正确结果计算错误扣2分1. Assume the following information: A Bank B Bank Bid price of Canadian dollar $0.802 $0.796 Ask price of Canadian dollar $0.808 $0.800 Given Given this this this information, information, information, is is is locational locational locational arbitrage arbitrage arbitrage possible? possible? If If so, so, so, explain explain explain the the the steps steps steps involved involved involved in in in locational locational arbitrage, and compute the profit from this arbitrage if you had $1,000,000 to use. (5%) ANSWER: Y es! One could purchase New Zealand dollars at Y Bank for $.80 and sell them to X Bank for $.802. With $1 million available, 1.25 million New Zealand dollars could be purchased at Y Bank. These New Zealand dollars could then be sold to X Bank for $1,002,500, thereby generating a profit of $2,500. 2. Assume that the spot exchange rate of the British pound is $1.90. How will this spot rate adjust in two years if if the the the United United United Kingdom Kingdom Kingdom experiences experiences experiences an an an inflation inflation inflation rate rate rate of of of 7 7 7 percent percent percent per per per year year year while while while the the the United United United States States experiences an inflation rate of 2 percent per year?(10%) ANSWER: According to PPP , forward rate/spot=indexdom/indexfor the exchange rate of the pound will depreciate by 4.7 percent. Therefore, the spot rate would adjust to $1.90 × [1 + (–.047)] = $1.8107 3. 3. Assume Assume Assume that that that the spot the spot exchange exchange rate rate rate of the of the Singapore Singapore dollar dollar dollar is is is $0.70. $0.70. The The one-year one-year one-year interest interest interest rate rate rate is is is 11 11 percent in the United States and 7 percent in Singapore. What will the spot rate be in one year according to the IFE? (5%) (5%) ANSWER: according to the IFE,St+1/St=(1+Rh)/(1+Rf) $.70 × (1 + .04) = $0.728 4. Assume that XYZ Co. has net receivables of 100,000 Singapore dollars in 90 days. The spot rate of the S$ is $0.50, and the Singapore interest rate is 2% over 90 days. Suggest how the U.S. firm could implement a money market hedge. Be precise . (10%) ANSWER: The firm could borrow the amount of Singapore dollars so that the 100,000 Singapore dollars to be be received received received could could could be be be used used used to to to pay pay pay off off off the the the loan. loan. This This amounts amounts amounts to to to (100,000/1.02) (100,000/1.02) (100,000/1.02) = = = about about about S$98,039, which S$98,039, which could could be be be converted converted converted to to to about about about $49,020 $49,020 $49,020 and and and invested. invested. The The borrowing borrowing borrowing of of of Singapore Singapore Singapore dollars dollars dollars has has has offset offset offset the the transaction exposure due to the future receivables in Singapore dollars. 5. 5. A A U.S. company ordered ordered a a a Jaguar Jaguar Jaguar sedan. In sedan. In 6 6 months , months , it will pay pay ££30,000 30,000 for for for the the the car. car. car. It It worried worried that that pound ster1ing might rise sharply from the current rate($1.90). So, the company bought a 6 month pound call (supposed contract size = £35,000) with a strike price of $1.90 for a premium of 2.3 cents/£. (1)Is hedging in the options market better if the £ rose to $1.92 in 6 months? (2)what did the exchange rate have to be for the company to break even?（15%）Solution: (1)If the £ rose to $1.92 in 6 months, the U.S. company would rose to $1.92 in 6 months, the U.S. company would exercise the pound call option. The sum of the strike price and premium is $1.90 + $0.023 = $1.9230/£This is bigger than $1.92. So hedging in the options market is not better. (2) when we say the company can break even, we mean that hedging or not hedging doesn’t matter. And only when (strike price + premium )= the exchange rate , hedging or not doesn’t matter. So, the exchange rate =$1.923/£. 6. Discuss the advantages and disadvantages of fixed exchange rate system.(15%) textbook page50 答案以教材第50 页为准页为准P AR T Ⅳ: Diagram(10%) The strike price for a call is $1.67/£. The premium quoted at the Exchange is $0.0222 per British pound. Diagram the profit and loss potential, and the break-even price for this call option Solution: Following diagram shows the profit and loss potential, and the break-even price of this put option: P AR T Ⅴ:Additional Question Suppose Suppose that that that you you you are are are expecting expecting expecting revenues revenues revenues of of of Y Y 100,000 100,000 from from from Japan Japan Japan in in in one one one month. month. Currently, Currently, 1 1 1 month month forward contracts are trading at $1 = $105 Y en. Y ou have the following estimate of the Y en/$ exchange rate in one month. Price Probability 90 Y en/$ 4% 95 Y en/$ 25% 100 Y/$ 45% 105 Y en/$ 20% 110 Y en/$ 6% a) What position in forward contracts would you take to hedge your exchange risk? b) Calculate the expected value of the hedge. c) How could you replicate this hedge in the money market? Y ou are expecting revenues of Y100,000 in one month that you will need to covert to dollars. Y ou could hedge this in forward markets by taking long positions in US dollars (short positions in Japanese Y en). By locking in your price at $1 = Y105, your dollar revenues are guaranteed to be Y100,000/ 105 = $952 On the other hand, you can wait and use the spot markets. Exchange Rate Probability Revenue w/Hedge Revenue w/out Hedge V alue of Hedge 90 Y/$ 4% $1,111 $952 -$159 95 Y/$ 25% $1,052 $952 -$100 100 Y/$ 45% $1,000 $952 -$48 105 Y/$ 20% $952 $952 $0 110 Y/$ 6% $909 $952 $43 Expected V alue = (.02)(-159) + (.25)(-100) + (.45)(-48) + (.20)(0) + (.08)(43) = -$24 Y ou could replicate this hedge by using the following: a) Borrow in Japan b) Convert the Y en to dollars c) Invest the dollars in the US d) Pay back the loan when you receive the Y100,000 。

《实用国际金融英语》参考答案Chapter 1Lead-in Activities1. Balance of payment data serve as record of the flows of goods, services and finance between an economy and the rest of the world. As one of the primary functions of the IMF is to prevent financial crises and assist countries in balance of payment difficulties, the collection of standardized, comparable balance of payment data is seen as a core task.BOP is a statistical statement that summarizes, for a specific period (typically a year or quarter), the economic transactions of an economy with the rest of the world. It covers:·All the goods, services, factor income and current transfers an economy receives from or provides to the rest of the world;·Capital transfers and changes in an economy’s external financial claims and liabilities.2. When a country has a surplus in its current account, i.e. when its exports exceed its imports, there will probably be a surplus in the balance of payment because the current account forms a very large proportion in the balance of payment. The surplus means the supply of foreign exchange exceeds demand. The monetary authority has to increase the purchase of the foreign currency and the stock of its international reserve. Meanwhile, the supply of domestic currency adds at an accelerated speed, which may lead to further issue of the local currency and cause inflation.3. When there is a long-lasting surplus in the balance of payment, particularly in the current account, there will also be excessive demand for its currency. The country’s exchange rate will rise, unless the central bank is willing to provide its currency to the market in exchange for foreign currencies. For example, when the export of the United States exceeds much more than import, a large quantity of US dollars are wanted by those importers to pay for the US goods. Thus, the exchange rate of US dollars rises.When the balance of payment has a long-lasting deficit, the payable debts denominated in foreign currencies are more than receivable claims; there will be a considerable demand for foreign currencies over the supply. As a result, the foreign currencies wanted appreciate, and the domestic one devalues.4.Temporary drop of surplus or moderate short-term deficit does not seriously affect a country’s economy or foreign trade. On one hand, deficit means larger amount of import than export in current account; on the other hand, it more likely shows an increasing demand of foreign currencies to pay for the imported goods. In other words, deficit may cause the raise of exchange rate of foreign hard currencies, which is conducive to the investors from the issuing countries of these appreciating currencies. This is surely good news to those that are in need of foreign investment. Temporary drop of surplus helps cool off the national economy and serves as a brake stopping ongoing inflation.5.The stock of international reserve should be neither more or less than necessary. The International Exchange Reserves are kept in the debit entry in BOP statements in that the monetary authority has to pay in exchange for the foreign hard currencies. Therefore, the amount and composition of exchange reserves are to be decided by taking the following factors into consideration.(1) The duration of the government’s external debt should be related to the duration of thereserves, with emphasis on the interest rate exposure risk.(2) High-risk-return assets should be limited within a safe range.(3) One of the most important issues raised in the context of investing the reserves of a centralbank is the choice of a reference basket.It is well recognized that the lowest level of the stock of international reserve should be no less than the amount payable for a 3-month import. And, the stronger an economy is, the less international reserve is to be kept.6. C7. CExercisesI. True or False1. F2. F3. F4. F5. F6. F7. F8. F9. F 10. F11. F 12. T 13. F 14. F 15. TII．Translation Task1.在与国际货币基金组织的技术援助使团于2000年上半年进行了磋商之后，国家外汇管理局吸取了国际通行的经验，以提高其国际收支报告的及时性。

1International FinanceAssignment Problems (2) Name: Student No.:I. Choose the correct answer for the following questions (only ONE correct answer) (5 credits for each question, total credits 4 x 15 = 60)1. According to the principle of the balanced balance of payments, if a country reduces its foreign exchange reserves by $20 million and the statistical discrepancy is in the credit entry of $5 million in a given period of time, the country runs __________ of its balance of payments during that period of time.A. $15 million deficitsB. $25 million deficitsC. $20 million deficitsD. $5 million deficits2. If a country’s domestic saving is greater than domestic investment, the country probably has __________.A. a current account surplusB. a net capital outflowC. a current account deficitD. Both A and B are possible.3. A debit entry in the balance-of-payments account represents a transaction that __________.A. a domestic resident receives a payment from abroadB. a domestic resident makes a payment to a foreign residentC. will improve the current account statusD. will have no affects on the nation’s foreign exchange reserves4. In terms of balance-of-payments account, which of the following would be recorded as a debit entry in the U.S. BOP?A. exports of merchandiseB. exports of servicesC. purchase of the U.S. Treasury bonds by non-residentsD. an increase of the deposit in a U.S. resident's account at a foreign bank5. A balance-of-payments deficit is defined as a situation in which __________.A. the value of payments made to the foreigners exceeds the value of receipts received from the foreigners in a given period of timeB. the government must borrow in order to meet its budget obligationsC. the value of manufactured good exports is less than the value of imported goodsD. a nation earns much in extra assets or reduced liabilities in its dealings with the rest of the world6. Which of the following would NOT be considered as a typical BOP transaction?A. Toyota USA is a US distributor of automobiles manufactured in Japan by its parent company.B. A U.S. subsidiary of European financial giant, Credit Suisse, pays dividends to its parent in Zurich.C. A US tourist purchases gifts at a museum in London.D. All are example of BOP transactions.7. The balance of payments is a statistical record which measures the total value of__________.A. a country’s foreign exchange reserves in a certain period of timeB. a country’s foreign trades between the residents of a country and its non-residents for a given period of timeC. all economic and financial transactions between the residents of a country and its non-residents for a given period of timeD. a country’s capital inflows and outflows at a particular date in a given year8. A British pension fund sells some of its holdings of the stocks of U.S. companies in order to buy U.S. corporate bonds. This transaction will affect __________.A. the U.S. international investment positionB. the British international investment positionC. both countries’ international investment positionD. None of the above. This is because both countries’ international investment position unchanged, only the composition of foreign investments in both U.S. and U.K. changes.9. Which of the following transactions is included in China’s balance-of-payments account?A. A U.S. embassy in Beijing pays salaries to its American staffs.B. The World Bank furnishes the Chinese government with a loan.C. A U.S. student pays tuition fees for his 4 year-study in Beijing University.D. The Chinese embassy in Washington buys telecommunication equipments from a Chinese company in Shanghai.10. If the U.S. runs current account deficits, we can expect that __________.A. it may act as a net debtor in the rest of the worldB. its domestic saving may less than its domestic investmentC. its domestic production is less than its domestic consumptionD. all of the above11. The trade deficit means that __________.A. residents are importing more goods than they are exportingB. residents are borrowing more funds than they are lendingC. residents are receiving more payments than they are makingD. residents are producing more goods than they are consuming12. Which of the following is an example of an exchange of financial assets?A. the exchange of butter for wheatB. the exchange of information technologyC. the exchange of a fixed-rate loan for a floating-rate loanD. the exchange of gold for jewelry13. For most countries, the subcategory that typically dominates the current account is __________.A. unilateral transfersB. goods tradeC. income tradeD. services trade14. When categorizing investments for the financial account component of the balance of payments the __________ is an investment where the investor has no incentive to control whereas the __________ is an investment where the investor wants to control over the assets.A. direct investment, portfolio investmentB. direct investment, indirect investmentC. portfolio investment, indirect investmentD. portfolio investment, direct investment15. If a country’s merchandise exports exceed its imports by $50 million, services trade balance is net $30 million and unilateral transfers made in excess of those received by $5 million, what is the country’s current account balance?A. $85 millionB. $75 millionC. $15 millionD. $25 million1. Country A’s BOT is __________.2. Country A’s current account balance is __________.3. Suppose the changes in country A’s official reserves are zero in 2010, its capital and financial account balance MUST be __________.4. If country A’s official reserves are recorded on the credit side by $10 million in 2010, its capital and financial account balance should be __________.5. Based on the assumption of question 4, country A has BOP deficit or surplus in 2010? Explain.6. What is the current account balance of a nation with a government budget deficit of $128 billion, private saving of $806 billion, and domestic capital formation of $777 billion?III. Express the following operations in the Dutch balance of payments in T-accounts: (5 credits for each question, total credits 3 x 5 = 15)a. A Dutch company exports €100,000 goods to a London company for €100,000 in bank deposits.b. An import billed for €150,000 paid with a check drawn on a London bank.c. A Dutch company based in Rotterdam uses €1 million that it was holding in a short-term deposit with its Rotterdam bank to purchase 10-year bonds issued by German government.IV. True or false: (7 credits)A credit entry in the balance of payments represents a demand for local currency whereas a debit entry represents a supply of local currency. You MUST explain your answer.Part IVTrue. Because the credit entry in BOP means domestic residents receiving foreign currencies. When they sell those foreign payments, they demand the local currency. The debit entry in BOP implies domestic residents need to buy foreign currencies with the local currency. Therefore, it represents a supply of local currency.。

（完整word版）国际⾦融题库（英⽂版）.doc Multiple-choice test(only one is correct):1.Gresham’ s Law states thata)Bad money drives good money out of circulation.b)Good money drives bad money out of circulationc)If a country bases its currency on both gold and silver, at an official exchange rate, it will be themore valuable of the two metals that circulate.d)None of the above.2.Balance of paymentsa) is defined as the statistical record of a country’ s international transactions over a certain period oftime presented in the form of a double-entry bookkeepingb) provides detailed information concerning the demand and supply of a country’ s currencyc)can be used to evaluate the performance of a country in international economic competitiond)all of the above3.If the United States imports more than it exports, thena)The supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris paribus.b)One can infer that the U.S. dollar would be under pressure to depreciate against other currenciesc)a) and b)d)None of the above4. The current spot exchange rate is $1.55/ and the three-￡month forward rate is $1.50/. You enter into￡ a short position on 1,000￡.At maturity, the spot exchange rate is $1.60/. How much have￡ you made or lost?a) Lost $100b) Made ￡100c) Lost $50d) Made $1505. The sensitivity of“ realized” domestic currency values of the firm denomi’scontractualated cash flowsin foreign currency to unexpected changes in the exchange rate is:a)Transaction exposureb)Translation exposurec)Economic exposured)None of the above6.Three days ago, you ente red into a futures contract to sell ?62,500 at $1.20 per ?. Over the past three days the contract has settled at $1.20, $1.22, and $1.24. How much have you made or lost?a)Lost $0.04 per ? or $2,500b)Made $0.04 per ? or $2,500c)Lost $0.06 per ? or $3,750d)None of the above7.A swap banka)Can act as a broker, bringing together counterparties to a swapb)Can act as a dealer, standing ready to buy and sell swapsc)Both a) and b)d)Only sometimes a) but never ever b)8.Suppose that the one-year interest rate is 5.0 percent in the United States, the spot exchange rate is$1.20/?, and the one -year forward exchange rate is $1.16/?. What must one -year interest rate be in the euro zone?a) 5.0%b) 1.09%c) 8.62%d) None of the above.a b$1.89 =1￡.00. If you were to buy $10,000,000 worth of British pounds and then sell them five minutes later, how much of your $10,000,000 would be“ eaten-ask”spread?bythe bida)$1,000,000b)$52,910.05c)$100,000d)$52,631.5810.Under the gold standard, international imbalances of payment will be corrected automatically underthea)Gresham Exchange Rate regimeb)European Monetary Systemc)Price-specie-flow mechanismd)Bretton Woods Accord11.With any hedgea)Your losses on one side should about equal your gains on the other sideb)You should try to make money on both sides of the transaction: that way you make money comingand goingc)You should spend at least as much time working the hedge as working the underlying deal itselfd)You should agree to anything your banker puts in front of your face12. Comparing“ forward” and“ futures” exchange contracts, we can say that:a)They are both“ marked-to-market” daily.b)Their major difference is in the way the underlying asset is priced for future purchase or sale:futures settle daily and forwards settle at maturity.c) A futures contract is negotiated by open outcry between floor brokers or traders and is traded on organized exchanges, while forward contract is tailor-made by an international bank for its clients and is traded OTC.d)b) and c)13.An “ option ” isa) a contract giving the seller (writer) the right, but not the obligation, to buy or sell a given quantityof an asset at a specified price at some time in the futureb) a contract giving the owner (buyer) the right, but not the obligation, to buy or sell a given quantity of an asset at a specified price at some time in the futurec)not a derivative, nor a contingent claim, securityd)unlike a futures or forward contract14.Economic exposure refers toa)the sensitivity of realized domestic currency values of the firm ’contractuals cash flows denominated in foreign currencies to unexpected exchange rate changesb)the extent to which the value of the firm would be affected by unanticipated changes in exchange ratec) the potential that the firm ’consolidated financial statement can be affected by changes in exchange ratesd)ex post and ex ante currency exposures15.Under a purely flexible exchange rate systema)Supply and demand set the exchange ratesb)Governments can set the exchange rate by buying or selling reservesc)Governments can set exchange rates with fiscal policyb) and c) are correct.。