InternationalFinancialManagement_5thEd_Eun_TestBank06

InternationalFinancialManagement_5thEd_Eun_TestBank06 - 06...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 06 Student: ___________________________________________________________________________ 1. An arbitrage is best defined as: A. A legal condition imposed by the CFTC B . The act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making reasonable profits C . The act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making guaranteed profits D. None of the above 2. Interest Rate Parity (IRP) is best defined as: A. When a government brings its domestic interest rate in line with other major financial markets B. When the central bank of a country brings its domestic interest rate in line with its major trading partners C. An arbitrage condition that must hold when international financial markets are in equilibrium D. None of the above 3. When Interest Rate Parity (IRP) does not hold A. there is usually a high degree of inflation in at least one country B. the financial markets are in equilibrium C. there are opportunities for covered interest arbitrage D. b and c 4. Suppose you observe a spot exchange rate of $1.50/ € . If interest rates are 5% APR in the U.S. and 3% APR in the euro zone, what is the no-arbitrage 1-year forward rate? A. € 1.5291/$ B. $1.5291/ € C. € 1.4714/$ D. $1.4714/ € 5. Suppose you observe a spot exchange rate of $1.50/ € . If interest rates are 3% APR in the U.S. and 5% APR in the euro zone, what is the no-arbitrage 1-year forward rate? A. € 1.5291/$ B. $1.5291/ € C. € 1.4714/$ D. $1.4714/ € 6. Suppose you observe a spot exchange rate of $2.00/ ≤ . If interest rates are 5% APR in the U.S. and 2% APR in the U.K., what is the no-arbitrage 1-year forward rate? A. ≤ 2.0588/$ B. $2.0588/ ≤ C. ≤ 1.9429 /$ D. $1.9429/ ≤ 7. A formal statement of IRP is A. B. C. D. Please note that your answers are worth zero points if they do not include currency symbols ($, € ) 8. If you borrowed € 1,000,000 for one year, how much money would you owe at maturity? 9. If you borrowed $1,000,000 for one year, how much money would you owe at maturity? 10. If you had borrowed $1,000,000 and traded for euro at the spot rate, how many € do you receive? 11. If you had € 1,000,000 and traded it for USD at the spot rate, how many USD will you get? 12. USING YOUR PREVIOUS ANSWERS and a bit more work, find the 1-year forward exchange rate in $ per € that satisfies IRP from the perspective of a customer that borrowed $1m traded for € at the spot and invested at i € = 4%. 13. USING YOUR PREVIOUS ANSWERS and a bit more work, find the 1-year forward exchange rate in $ per € that that satisfies IRP from the perspective of a customer who borrowed € 1m, traded for dollars at the spot rate and invested at i $ = 2%....
View Full Document

This note was uploaded on 07/28/2011 for the course FIN 308 taught by Professor Canarella during the Summer '11 term at University of Nevada, Las Vegas.

Page1 / 24

InternationalFinancialManagement_5thEd_Eun_TestBank06 - 06...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online