IBUS 302: International Fina nc e, Exam 1

EXAMPLE

There a re 100 p ossible p oints, a nd the exa m is worth 15% of your c ourse
g ra d e. You ha ve one hour a nd fifteen minutes. You a re only p erm itted to
use a c a lc ula tor. To rec eive c red it, you m ust show a ll of your work. In
yours a nswers, p rovid e the c orrec t num b er of d ec im a l p oints for
exc ha ng e ra tes a nd two d ec im a l p oints for p erc enta g es, e.g ., 1.34%.

Short Answers (50 p oints) NAME: _____________________________

1. De sc rib e o ne b enefit o f the intro d uc tio n o f the Euro. (5 p o ints)

2. If the p ound a p p re c ia tes a g a inst the d olla r, ho w d o es S($/ £) c ha ng e?

Exp la in b rie fly. (5 p o ints)

3. Wha t is a forw a rd tra nsa c tion? (5 p oints)

4. In w hic h a re a s o f the g lob e ha s m ost p riva tiza tio n o c c urred ? (5 p o ints)

5. Ho w d o es free tra d e e nha nc e a c o untry’ s ec onom ic well-b eing ? (5

p o ints)

6. Wha t w a s Lond o n’ s ‘ Big Ba ng ’ ? (5 p o ints)

7. Wha t is the im p orta nc e of the G enera l Ag re em ent on Ta riffs a nd Tra d e

(G ATT)? Exp la in b riefly. (5 p o ints)

8. De sc rib e the interb a nk m a rke t. (5 p o ints)

9. List the c o nd itions ne c e ssa ry for a rb itra g e. (5 p o ints)

10. Wha t is o ne p ro b le m in m a na g ing p o litic a l risk? (5 p oints)

Ca lc ula tions (50 Points) Rem em b er to show a ll c a lc ula tions.

11. Com p lete the ta b le b elow . (10 p oints)

3/19/2016 IBUS 302: International Finance, Exam 1 2 (of 2)

Exchange Rates
USD JPY EUR CAD
USD 95.2381 0.7138 1.1571
JPY
EUR
CAD

12. If Sb (€/ £) = 0.8643 a nd Sa (€/ £) = 0.8650, w ha t a re the fo llo w ing va lues:

(10 p oints)

Sb (£/ €) = ________________

Sa (£/ €) = ________________

13. Find the Bid -Ask Cro ss Ra te s. (10 p o ints)

Bid Ask
USD USD
USD 1 USD 1
EUR 1.4010 EUR 1.4018
CAD 0.8642 CAD 0.8647
CHF 0.9225 CHF 0.9231

Find Cross-Rate
Sb (CHF/CAD)

14. Tria ng ula r Arb itra g e (10 p o ints)

Exchange Rates
USD JPY EUR CAD
USD 1 95.2381 0.7138 1.0571
JPY 0.010500 1 0.007495 0.011100
EUR 1.4010 133.4241 1 1.4809
CAD 0.9460 90.0937 0.7752 1

1. Is there an arbitrage opportunity?

2. What is the arbitrage profit?
3. What is the order of currencies to capture the profit?

Arbitrage (Yes/No) Arbitrage Profit Order of Currencies

USD, JPY, CAD $ → _____ → _____ → $

15. Ca lc ula te the Forw a rd Prem ium s/ Disc o unts. (10 p o ints)

Forward Rates
USD/EUR Forward
0 1.4002 Premium/Discount
1 1.4005 1
3 1.4025 3
6 1.4055 6