mid1-sam

# mid1-sam - Multinational Financial Management Spring, 2012...

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Unformatted text preview: Multinational Financial Management Spring, 2012 Sample Mid term 1 1. In conversation, Interbank FX trades use a shorthand abbreviation in expressing spot currency quotations. Consider a \$/ bid-ask quote of \$1.9072-\$1.9077. The big figure, assumed to be known to all traders is: (a) \$1.9077 (b) 1 (c) 1.90 (d) 77 Answer: c) 2. If annualized interest rates in the U.S. and Switzerland are 10% and 4%, respectively, and the 90 day forward rate for the Swiss franc is \$0.3864, at what current spot rate will interest rate parity hold? (a) \$.3902 (b) \$.3874 (c) \$.3807 (d) \$.3792 Answer: c) for 90 days, i \$ = 2 . 5% and i SF = 1% 1 . 025 1 . 01 = 1 + i \$ 1 + i SF = F (\$ /SF ) S (\$ /SF ) = . 3864 S (\$ /SF ) S (\$ /SF ) = 1 . 01 . 3864 1 . 025 = 0 . 3807 3. You are a U.S.-based treasurer with \$1,000,000 to invest. The dollar-euro exchange rate is quoted as \$1.20 = e 1.00 and the dollar-pound exchange rate is quoted at \$1.80 = 1.00. If a bank quotes you a cross rate of 1.00 = e 1.50 how much money can an astute trader make? (a) No arbitrage is possible (b) \$1,160,000 (c) \$500,000 (d) \$250,000 Answer: a) since the implied cross rate (\$1 . 20 / e e 1 . 50 / ) = \$1 . 80 / is the same as the quote rate, therefore no arbitrage is possible. 4. An arbitrage is best defined as: (a) A legal condition imposed by the CFTC (Commodity Futures Trading Commission)....
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## mid1-sam - Multinational Financial Management Spring, 2012...

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