Prof. Bouslimi Lobna
Study Guide for the Final Exam
The final exam is a comprehensive test of your basic knowledge of the material covered in the
international finance course. The test is 3 hours long and includes 3 sections: 1) multiple choice
Fina 470 Chapter 12
WHEN SHOULD FIRM HEDGE EXCHANGE
Deviations from purchasing power
parity are large and persistent enough
to expose firms to exchange risk. Also
difficult to predict exchange rare risk.
Forward or spot contracts have zero
Fina 470 Chapter 13
MEASURING EXPOSIRE TO EXR
Three factors established about effect of
exchange rate volatility of firms value:
1. Changed in nominal rate are not
offset by changes prices domestically
or abroad, so significant deviations
from PPP, imply
Fina 470 Chapter 8
Allow investors to make money if price
goes up, and not loose money if price
goes down like in forwards and futures
These are asymmetric, nonlinear payoffs.
Gives the holder the right to buy a stated
Fina 470 Chapter 3
SPOT MARKET for FOREIGN CURRENCY
0.8 USD per CAD (USD/CAD 0.8) means
buying a CAD by paying USD 0.8.
Pros write it in following: Currency Name:
EUR/USD Value: USD/EUR 0.75.
Difference is usually proceeded with
number or equals.
Fina 470 Chapter 7
MARKETS FOR CURRENCY SWAPS
Loans exceeding one year are multipayment: Interest is due often multiple
times during year, and principal
To swap this loan you need as many
forward hedges as there are future
Fina 470 Chapter 11
THE FORWARD RATE AS A BLACK BOX
How to Verify the Forward Rates
Performance as predictor
Uncovered Interest Parity discovered
this equation. If RP = 0, then St,t+1 =
FPt,t+1 + Et+1, where Et+1 = 0
Has number of implication
Chapter 1 1. Currency Risk Management
the long run. This is a strategic policy decision, where a neutra allocation is
decided in the absence of specic priors on currencies. Many factors can affect
the choice of a strategic hedge ratio.
A currency over
225 stocks average. They can be global stock indexes computed by a global
organization, such as MSCI, FT SE, D], or SScP.
Many practical aspects must be taken into account in global equity investing:
market concentration, liquidity, tax asp
I To analyze the effects of ination for valuation purposes, the analyst must
I With earnings that are constant except for ination, I as the ination rate, r as M
Chapter 6. Equity: Concepts and Techniques
I A global industry analysi
Australia's Current Account
Use the following data from the International Monetary Fund to answer questions 3.1 through 3.4.
What is Australia's balance on goods?
What is Australia's balance on services?
What is Australia's balance on good
Additional questions on exchange rate
1. At a certain point in time, the euro is quoted as EUR: USD = 1.1610 1.1615, and the Swiss franc
is quoted as USD: CHF = 1.4100 1.4120. What is the implicit EUR: CHF quotation?
Chapter 10. Derivatives
I Options can be used to invest in a specic security or market, while limiting the
downside risk potential. They are also used to insure an existing portfolio.
For example, buying a put on an asset (or portfolio) allows the red
Problem 2.1 Chantal DuBois in Brussels
Chantal DuBois lives in Brussels. She can buy a U.S. dollar for 0.7600.
Christopher Keller, living in New York City, can buy a euro for $1.3200.
What is the foreign exchange rate between the dollar and the euro?
Fina 470 Chapter 22
JOINT VENTURE CONTRACT NPV
NPV allows each party to evaluate
whether cash flows of joint venture
exceed costs to them.
Profit sharing should be proportional
pure equity contract, whe