Sample Quiz 2 Solution

# Sample Quiz 2 Solution - Version Fin 536 Sample Quiz 2...

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Version Fin 536 Sample Quiz 2 Solutions Name_________Section_4pm/7pm 1. Fill out the answers. a. Henry borrows \$10000 at an interest rate i \$ =2%; converts it into euro at the current spot rate S(\$/€)=1.32; deposits the funds in a European savings account for a year at interest rate of i =3.4%. At the end of year, Henry converts his revenue in Europe back into dollars at the spot rate S 1 (\$/€). Compute his net profit in the following scenarios. If the spot rate is S 1 (\$/€)=1.25, the net profit/loss is \$___-408.33__ ____. If the spot rate S 1 (\$/€)=1.45, the net profit/loss is \$____1158.33 _____. b. Three banks are quoting the following rates: Citibank quotes \$1.52/£; UBS quotes €1.30/£; Deutsche Bank quotes \$1.45/€. If you start with \$1000, you profit will be \$____240.13____ ___ from arbitrage. The direction of arbitrage implies _____buying__ _______ (buying/selling) € from/to UBS. c. You enter to buy €125,000 forward delivered in 6 months. The forward price is F 6 (\$/€)=1.34. If the spot rate at the maturity is \$1.30/€, you have a ____loss ____ (profit/loss) of \$_____5000 ________. d. The Expectations Hypothesis implies __ zero _ _(negative/zero/positive) profit on average in the forward trading.

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## This note was uploaded on 12/06/2011 for the course FIN 536 taught by Professor Staff during the Fall '11 term at S.F. State.

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Sample Quiz 2 Solution - Version Fin 536 Sample Quiz 2...

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