Fin 6605 MC Set A Model

Quote a b c d 12446 57 8793 8819 080812

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Unformatted text preview: te a. b. c. d. €/£ = 1.2446-57 €/£ = .8793-.8819 £/€ = .0808‑12 £/€ = .0976‑87 21. The following are true about basic differences between forward and futures contracts except: a. Forward contracts are individually tailored while futures contracts are standardized b. Forward contracts are negotiated with banks whereas futures contracts are bought and sold on organized exchanges. c. Forward contracts have no daily limits on price fluctuations whereas futures contracts have a daily limit on price fluctuations d. Forward contracts entail obligations whereas futures contracts do not 22. Suppose that a firm located in Belgium can borrow dollars at 8% or Belgian francs at 14%. If the Belgian franc is expected to depreciate from BF/$ = 58 at the beginning of the year to BF/$ = 61 at the end of the year, then the expected effective cost of the dollar loan is: expected a. 8.39% a. b. 20.14% c. 12.37% d. 9.15% e. 13.58% 13.58% Note: At what exchange rate would the dollar cost of Note: borrowing be equal to the frank cost? borrowing 23. Intel (USA) has the choice of borrowing dollars at 9.5% or yen at 7% for one year. The current exchange rate is ¥152 = $1. At what end‑of‑year exchange rate would the yen costs of these two loans be equal? loans a. b. b. c. c. d. ¥/$ = 155.55 ¥/$ ¥/$ = 149.2 ¥/$ ¥/$ = 153.6 ¥/$ = 148.5 ¥/$ 24. The statement, the forward rate is an unbiased predictor of the future spot rate, means: predictor means: a. The forward rate is always equal to the future spot at maturity. at b. The forward is never equal to the future spot at b. maturity. maturity. c. The exchange rate is random. d. The forward rate is equally likely to overstate or d. understate the future spot. understate e. The forward premium (discount) is an unbiased e. predictor of the expected change in exchange rates predictor f. Both d and e f. Both 25. If the central bank sets a fixed exchange rate that undervalues domestic currency, undervalues then: then: a. The Central Bank will lose reserves. b. There will be an excess supply of domestic b. currency. currency. c. The country will run a BOP deficit. d. The country will run a BOP surplus. d. The e. Both (a) and (c) 26. If the values of major currencies were fixed to the dollar and the dollar were tied to gold (as in the Bretton Woods System) then the following would not be true: not be a. There could be no inflation or deflation in the US b. There could be no inflation or deflation in other b. participating countries. participating c. The US would need a large stock of gold and c. dollars to maintain the system. dollars d. The US and other participating countries would d. have a constant inflation or deflation over time have e. Both (a) and (c). 27. Based on interest rate parity, the larger the degree by which the foreign interest rate exceeds domestic interest rate, the: exceeds a. Larger will be the forward discount of the a. foreign currency. foreign b. Larger will be the forward premium of...
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This note was uploaded on 12/17/2012 for the course FIN 3604 taught by Professor Zhang during the Spring '12 term at University of San Francisco.

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