International Finance

Problem Set 3 (Chapter 7)

1. American terms refers to the
a) number of U.S. dollars per unit of foreign currency
b) number of foreign-currency units per U.S. dollar
c) quotation system found in the United States
d) bid-ask spread on the U.S. dollar
2. Trading on the foreign exchange market is
a) located in a physical headquarters in London
b) takes place within an organied exchange
c) conducted by licensed brokers from the London stock exchange
d) an electronically linked network of banks! brokers! and dealers
3. "edgers! mostly #############! engage in forward contracts on the foreign exchange
markets to protect the home currency $alue of $arious foreign currency-denominated assets
and liabilities on their balance sheets.
a) commercial banks
b) public utilities
c) multinational corporations
d) speculators
4. The spot and %&'-day forward rates for the euro are (%.))%' and (%.)*'+! respecti$ely.
The euro is said to be selling at a forward
a) discount of ,.-.
b) premium of ,.-.
c) discount of %.*.
d) premium of %.*.
5. /n 0ecember )! +''%! spot 1apanese yen were sold at ('.''&'2&. Suppose the %&'-day
forward 1apanese yen was selling at a %.-%. annualied premium! what is the %&'-day
forward rate of the yen3
a) '.''&+*2
b) '.''&%)2
c) '.''&*24
d) '.'%',)&
6. Suppose the spot rate and forward rate for the 5ritish pound are (%.*+*& and (%.*%4-
respecti$ely. 6ssume the forward pound is selling at a %.-*. annualied discount! what is
the number of days of the forward contract3
a) %&' days
b) %+' days
c) -' days
d) ,' days
%
7. Suppose one obser$ed the following direct spot quotations in 7ew 8ork and London!
respecti$ely9 (%.+2''-,' and :.&'''-2'. 6rbitrage profits per (% million equal
a) (,)4
b) ('
c) (%!+,&
d) (*!*-+
8. Suppose it is 1anuary %-&' and the (;0< exchange rate is 0<% = (.)2 and the 0<;>>
exchange rate is >>% = 0<.)%. ?hat is the >>;( exchange rate3
a) ).++, >rench francs per dollar
b) %.%+- >rench francs per dollar
c) .&&, >rench francs per dollar
d) -.+%4 >rench francs per dollar
. Suppose the quote for euro is (.-&,2--+;@. The percent spread is
a) +.)%.
b) '.-4.
c) '.,+.
d) '.+4.
+