International Finance

1、international financeappendix asample exam questionsinternational finance and investmentsmidterm exam, summer 19971. assume two countries of alpha land and beta land. suppose that interest rates are 15% and 5% in alpha land and beta land respectively. suppose the currency of alpha land is and the cu

2、rrency of beta land is . assume that initially the exchange rate between these two currencies is given as s(/) =1.1.1suppose that the government of beta land does not allow trade with alpha land. in the absence of trade, draw domestic demand for loanable funds, supply of loanable funds and correspon

3、ding equilibriums for each country (i.e., show the equilibrium value of interest rates and the amount of funds utilized by demanders and supplied by lenders in each country and designate the exporter and importer countries). (you may use alphabetical letters to identify the amounts of funds). (5 poi

4、nts)1.2suppose governments allow trade in funds between their countries ( assume zero transaction costs). draw the international market for loanable funds. which country will export funds and which country will import funds? (draw the export supply of funds and import demand for funds). show the equ

5、ilibrium values for interest rate at international market, exporter and importer markets. show the amount of funds exported from exporter and the amount of funds imported by the importer. (5 points)1.3suppose that exchange rate changes to s(/) =0.8, show the new equilibriums for interest rate, capit

6、al inflows, capital outflows in all markets. what is the impacts of currency depreciation (appreciation) on capital inflow and capital outflows? (5 points)1.4assuming that s(/) =1, suppose that the government of capital importing country allows only half of the capital imported under (1.2) above to

7、enter that country. show the new equilibriums for interest rate, capital inflows, capital outflows in all markets. what are the impacts of quota on flow of capital on interest rate in each country? assume that the importer is a large country whose actions can influence international market.(5 points

8、) parts 1.5 in below is optional and has 25 bonus points. 1.5the market below the international market is designated as atransaction service market (i.e., a market which shows the demand for and supply of the services for transferring funds from one country to another country). in 1.2 above we assum

9、ed zero transaction costs, that is the price for transferring funds from exporter to importer assumed to be zero.1.5.1in this transaction service market, derive the demand for such services from information on the import demand for funds and export supply of funds that you drew in international mark

10、et under 1.2 above. (5 bonus points)1.5.2draw the supply of transaction services which produces a zero transaction cost. (5 bonus points)1.5.3assume that transaction cost is a constant positive amount of say $t, draw the supply of transaction services and identify the amount of founds that will be t

11、raded under nonzero transaction cost. (10 bonus points)1.5.4compare your new equilibriums of interest rates and quantity of funds traded in both countries with equilibriums you found under 1.2. what are the implications of nonzero transaction cost for trade in international capital across countries.

12、 (5 bonus points)2. compute the spot and outright forward quotations for (dm/ ,) from the following swap quotations for (dm/$u.s.) and ($u.s./,): (explicitly indicate the forward bid and ask prices of (dm/ ,) in american terms) (20 points)spot30-day swap 90-day swap180-day swap(dm/$u.s.)1.7259-6528-

13、2225-3235-30($u.s./,)1.4780-8723-2830-2533-273. suppose that today you bought 5 british pound future contracts at settlement price of $1.4640 for september delivery. you are asked to post $2000 margin for each contract. assume that the settlement prices for september british pound futures over the n

14、ext four days are given as: $1.4632, $1.4650, $1.4639, and $1.4641. calculate every day balance on your margin maintenance. when, if any, you will receive margin calls? how much, if any, you must pay for your margin maintenance? assuming that after four days you sell this contract, how much will be

15、your profit or loss? (10 points)4. what factors determine the value of premium for an option (call and put)? explain how these factors cause a high or low value for options.(5 points)5. explain why an indefinite trade surplus mean a country is living below its means (consuming less than what is prod

16、ucing). (5 points)6. compare the exchange rate determination based on the currency demand & supply view with exchange rate determination based on the monetary theory of exchange rate view. make sure to explain and compare the impacts of inflation, interest rate changes, and changes in gnp on the exc

17、hange rate under each view. (15 points)7. assume that :u.s. money supply = mus = $500 billioncanadian money supply = mcan = c$50 billionu.s. gross national product = gnpus = $7000 billioncanadian gross national product = gnp can = c$600 billion = 1 and = 0and ppp holds.7.1what exchange rate is impli

18、ed by the monetary theory of exchange rates? (5 points) 7.2assume that canadian money supply increases from c$50 billion to c$55 billion. what happens to the implied exchange rate, and how does this compare to the proportional change in the canadian money supply? (10 points)7.3 assume that all data

19、in question 7 is unchanged except the gnpus, which increases from $7000 billion to $7700 billion. what happens to the exchange rate, and how does this compare in magnitude to the change in u.s. gnp? (10 points)international finance and investmentmidterm exam, fall 19971.suppose the japanese yen is c

20、urrently traded at 80 -/$. the canadian dollar is traded at c$1.60/$.1. determine the -/c$ rate.2. suppose the -/c$ was at 60 -/c$. is there any arbitrage opportunity? how would you take advantage of any arbitrage situation? what is your profit? (show all calculations) (20 points)2. assume that fran

21、ce places a quota on goods imported from the united states, and the united states does not retaliate. how could this affect the value of the french franc vis-a-vis the u.s. $. please use words (intuition) as well as labeled graphs (dd and ss of currencies) to support your answer. (20 points).3. assu

22、me the following exchange rate quotes on british pounds:bidaskali bank$1.46$1.47lumber bank$1.48$1.49explain how locational arbitrage would occur. also, explain wht this arbitrage will realign the exchange rates. (15 points)4. the currency crises moved from thailand to indonesia and now honk kong. a

23、s the result of such crises the stock markets all over the world had fallen significantly. explain:(a)what caused currency crises in those countries to begin with?(b)how currency crises caused stock sell offs in major markets?(c)what actions (by governments or investors) can re-establish currency ma

24、rkets in those countries? (15 points)5. compute the spot and outright forward quotations for (dm/ ,) from the following swap quotations for (dm/$u.s.) and ($u.s./,): (explicitly indicate the forward bid and ask prices of (dm/ ,) in american terms) (20 points)spot30-day swap 90-day swap180-day swap(d

25、m/$u.s.)1.7259-6528-2225-3235-30($u.s./,)1.4780-8723-2830-2533-276. suppose that today you bought 5 british pound future contracts at settlement price of $1.4640 for september delivery. you are asked to have always a minimum of $2000 margin. assume that the settlement prices for september british po

26、und futures over the next four days are given as: $1.4632, $1.4650, $1.4639, and $1.4641. calculate every day balance on your margin maintenance. when, if any, you will receive margin calls? how much, if any, you must pay for your margin maintenance? assuming that after four days you sell this contr

27、act, how much will be your profit or loss? (10 points)student name:_midterm exam, winter 1998student id#:_-_-_ali emamiplease answer all questions. show your calculations and graphs as required. 1:(10 points)suppose you are an investment consultant working for a japanese firm seeking for higher yiel

28、d on a -500 million investment. assume that one year japanese t-bill yield is 12%, where the u.s. one year t-bill rate is 5%. the current spot rate is $0.008094/-. the one-year forward rate is $0.006052/-.3. what would be the maximum yield (in %) that you can get for your firm=s investment? (show al

29、l calculations)4. explain how your firm can obtain the higher yield, and how much (in - ) will be total return to your investment. (please show your calculations)2:(20 points)suppose today, a 30 milligram coco chanel=s perfume costs ff225 in a duty free shop inside the international airport in paris

30、. the same perfume costs $45 in ali=s perfume shop in eugene today.1. calculate the spot exchange rate implied by the absolute purchasing power parity doctrine (appp).2. suppose the current spot exchange rate quoted by u.s. bank campus branch is ff5.5/$, what is the real exchange rate? what are the

31、units of the calculation?3. according to your calculation, is ff over-or-under valued?4. suppose that a year from today, u.s. inflation rate is expected to be about 2%, where inflation in france is expected to be around 8%. what will be the expected spot rate of ( ff/$) a year from now?3:(15 points)

32、suppose you are a foreign exchange trader at a japanese bank. one of your customers would like to know spot and 30-days forward yen quotes on canadian dollars. given the following rates: (please show all of your calculations)currencyspot u.s. $ is quoted as: 30-days u.s. $ is quoted as:-/u.s.$-125.2

33、5-8614-12c$/u.s.$c$1.4421-4519-251. what bid and ask yen cross rates would you quote on spot canadian dollars?2. what outright yen cross rates would you quote on 30-days forward canadian dollars? 3. what is the forward premium or discount on buying 30-days canadian dollars against yen delivery?4:(35

34、 points)you are the manager of the foreign exchange department of ali inc. suppose the following information are given to you:at the beginning of the years($/sf)= $0.70/sf;s($/,)= $1.596/,;market cross rate s(sf/,) = sf 2.28;one-year forward rate of sf: f($0.71/sf);one-year forward rate of ,: f($1.5

35、8004/,);one-year u.s. interest rate: i$ = 8.00%;one-year british interest rate: i, = 9.09%;one-year swiss. interest rate: isf = 7.00%;1. determine whether triangular arbitrage is feasible, and if so, how you would conduct it to make profit for the company.2. given the information, determine whether

36、a profitable covered interest arbitrage is feasible, if so, how?3. given the information, utilize the international fisher effect theory to forecast the annual percentage changes in the british pound=s value over the year.4. assume that at the beginning of the year, the pound=s value is in equilibri

37、um. assume that over the year, the british inflation rate is 6 percent, while the u.s. inflation rate is 4 percent. assume that any changes in the pound=s value due to the inflation differential has occurred by the end of the year. determine how the pound=s value changed over the year in accordance

38、with the purchasing power parity (ppp) doctrine. international finance and investmentfinal exam, summer 19971.suppose the japanese yen is currently traded at 90 -/$. the canadian dollar is traded at $1.40 c$/$.a.determine the -/c$ cross-rate.2. suppose the -/c$ was at 60 -/c$. is there any arbitrage

39、 opportunity?3. how would you take advantage of any arbitrage situation?4. what is your profit? (show all calculations)2. suppose the spot rate is 90 -/$, the three-month forward rate is 88 -/$, and the three-month yen interest rate is 2.5 percent.1. what is the implied three-month us$ interest rate

40、?2. suppose the actual three-month us$ interest rate is 10 percent. what would you do to profit from the arbitrage opportunity? (show all calculations)3. suppose a german firm wishes to issue commercial papers in dm, but it is unable to do so in the german market (i.e., firm requires dm funds on a s

41、hort-term basis, but no dm commercial papers market exists comparable to the u.s. dollar commercial paper market).1. what can the firm do to replicate commercial paper (cp) securities without using german securities?2. assume that the spot rate is $0.60/dm. the three-month forward rate is $0.58/dm.

42、the three-month u.s.$ cp rate is 8 percent. at what rate can the german firm expect to issue synthetic dm three-month cp? 4. suppose a big mac at a mcdonald=s in new york costs $2.50 and in paris costs ffr 15.1. what spot exchange rate establishes the law of one price for these two commodities?2. if

43、 the current spot exchange rate is ffr 5/$, what is the real exchange rate? what are the units of calculations?3. according to your calculation, is the dollar overvalued or undervalued? how about the french franc?5. suppose the current spot rate is $1.55/, on the first of january. by year-end, the u

44、.s. cpi is expected to climb from 144 to 150 and the u.k. cpi from 120 to 130. according to ppp, what is the expected sopt rate on december 31?6. by studying the stock price of a u.s.-based publicly traded company you have noticed that when the dollar drops against various currencies the company=s v

45、alue on the stock exchange increases. by averaging the link between exchange rates and the company=s value you have determined the size of the change in each exchange rate that increases the value of the company by $1 million: su (dm/$) = 0.1, su (-/$) = 5, su (sfr/$) = 0.05, and su (c$/$) = 0.04 wh

46、at is the company=s exposure to the various currencies?7. please write down your regression equations on the equation relating the total exports of oregon to all pacific rim countries (prcs) combined to the corresponding exchange rate and gdp over the 1989-1995 time period (your last two equations:

47、the linear and log linear forms). for each equation write down the magnitude of estimated coefficients, their corresponding t-student and adjusted r2. identify the units of measurements for each independent variable. explain the signs that you expect to have on each coefficient. interpret the meanin

48、g of the magnitude of each coefficient. present the magnitude of exchange rate and gdp elasticities in each equation. student name_final exam, fall 1997student id # :_ali emamiplease answer all questions (100 point). part a:exchange rate determination:( 10 points)1.demand and supply version of excha

49、nge rate determination suggests a different impact from changes in a country=s gdp and interest rate on the value of its currency than what is suggested by the monetary version of exchange rate determination. explain justifications provided by each approach. (10 points)part b:cross rates, forward pr

50、emium or discounts : ( 10 points)1. how many bilateral exchange rates can be created using 230 currencies. (5 points)answer: n(n-1) = 230 * 229 = 52,6702. assume the following spot and forward quotation on (dm/$):spot (dm/$)answers: ($/dm)forward(dm/$)answers: ($/dm)days forward1.75250.57061.770.565

51、030 1.75250.57061.790.5587601.75250.57061.810.5525180a.calculate the forward premium or discount as a percentage at annual rate on the german marks. (5 points)answer: german mark premium(discount) 30 days (0.565-0.5707)/0.5706 * 360/30 = -11.78% or (1.7525-1.7700)/1.7700 * 360/30 = -11.78%60 days (0

52、.5587-0.5706)/0.5706 * 360/60 = -12.51%180 days (0.5525-0.5706)/0.5706 * 360/180 = -6.34%2. calculate the forward premium or discount as a percentage at annual rate on the u.s. dollar. (5 points)answer: us dollarspremium(discount)30 days(1.7700-1.7525)/1.7525 * 360/30 = 11.98%60 days(1.7900-1.7525)/

53、1.7525 * 360/60 = 12.84%180 days(1.8100-1.7525)/1.7525 * 360/180 = 6.56%part c:purchasing power parity: (10 points) 1. suppose u.s. and france produce only one good, rice. assume that the price of five kilo grams bag rice in the united states is $5.25 and in france it is ff 30.50.1. according to the

54、 law of one price, what should the ff/$ spot exchange rate be, i.e., s(ff/$)? (5 points)answer: $5.25 = s($/ff) * 30.5 = s($/ff) = 0.17212. assume that the price of rice over the next year is expected to rise to $6.3. in the united states and to ff 42.7. calculate the one-year ff/$ forward rate , i.

55、e.,f(ff/$). (5 points)answer: s($/ff) = $6.3/ff42.7 = 0.1475 part d:interest rate parity and international fisher effect: (10 points)1. assume that the citibank trading room is dealing on the following quotations:s($/,) = $1.5000euro-, interest rate (6-months) = 11% p.a.euro-$ interest rate (6-month

56、s) = 6% p.a.and the barclays bank is quoting forward , (six months) at $1.4550.1. describe the transactions you would make to earn risk-free covered interest arbitrage profit? (show all calculations) (5 points)2. how much profit would you expect to make? (show all calculations) (5 points)answer: (1+r/2us) ? f/s(1+r/2uk) (1.03) ? 1.455/1.50(1.055) (1.03) (1.023) = invest in $ borrow , invest in $, bring back to pay , , 1 * s($/,) = 1 * 1.5 = $1.5, invest in $, get in $1.5(1+6%/2) =