4604 Exam 1Version #2Student: ___________________________________________________________________________1. Which risk do experts generally agree is the most important for firms and why? A. Transaction risks because transactions are where firms make their profits or suffer their losses. B. Currency risks because all firms deal in currencies. C. Interest rate risks because interest rates affect firms in a number of different ways. D. Economic risks because the economy is a primary determinant in the success of a firm. 2. Calculate the cross rate for USDHKD with the following information: USDCAD 1.0445 and HKDCAD 0.1313 3. As a result of its balance of payments deficit in the 1960's and the effect on its currency: 4. What is your profit on a long European put option on the EURUSD with an option premium of 0.03 with a strike of EURUSD of 1.28 that has a spot price of 1.23? 1
5. Purely domestic firms do not have any ____________ exposure, but they do have ___________________ exposure. A. market; currency B. currency; operating C. operating; translation D. transaction; operating 6. Could an arbitrageur exploit the following situation; the annual interest rate in Japan is 1.4% and in the US the annual interest rate is 4.9%, the USDJPY spot price is 101 and the one-year forward price is 97. What is the net profit for USD 1 (or its equivalent in the Yen) committed to this strategy? 7. If a party has the right but not the obligation to buy the underlying asset, the party has a(n) _____________________; if the party has right but not an obligation to sell the underlying asset, the party has a:
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