Chapter 3 Practice Problem
The forward rate is the exchange rate used for immediate exchange of currencies.
The ask quote is the price for which a bank offers to sell a currency.
The existence of imperfect markets has prevented the int
UNIT 7 Homework
1. You enter into an NDF to sell CLP for $.225/CLP. The contract size is CLP10,000,000 and
the contract matures in six months.
If the spot rate is $.216/CLP in six months, will you owe the bank money or will the
bank owe you money?
1. How do speculators use option contracts to bet on anticipated foreign currency
2. What is the primary advantage to using a forward hedge as opposed to an option
3. Why are option contracts always an asse
1. How much less does the U.S. firm in Q1 and Q2 receive in dollars from the receivable if
the spot exchange rate falls to $1.15/ rather than staying at $1.25/?
2. True or False. The firm referred to in Q1, Q2, and Q3 faces foreign exchange risk in the
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1. What are the four main reasons for studying a balance of payments statement?
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Unit 3: International Financial Markets
Focus for Unit 3:
In Unit 3, the focus is on the various components of the international financial markets. We will
examine how spot markets for foreign exchange operate, how forward markets and
The following two pages illustrate the balance sheet accounting of the transaction above.
Some simple assumptions:
o BUSB (big U.S. Bank) has a correspondent banking relationship with BEB (big European Bank)
o S0 = $1.40/
o The large U.S. bank (BUSB) has
After the transaction, the balance sheets of BUSB and BEB will appear as follows. Please note that I
have the BEB on top now (simply because its accounting is simplest to understand).
Liabilities + OE
D1 = 55,000 (BUSBs CBAB)
Chapter 6 practice problems
1. Under a pegged exchange rate system, the home currency's value is pegged to a foreign currency.
2. A major advantage of the euro is the complete elimination of exchange rate risk on transactions
KEY to chapter 4 practice problems
NOTE #36, ignore the 2nd half of the question.
Chapter 2 Practice Problems
1. A balance of trade surplus indicates an excess of imports over exports.
A weakening of the U.S. dollar with respect to the British pound would likely reduce the U.S. exports
to Britain and increase U.S. imports f
Chapter 1 Practice Problems
For questions 1 to 20, please mark A for True and B for false.
Franchising is the process by which national governments sell state owned operations to
corporations and other investors.
2.The parent of MNC can implem