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TOPIC 2: BOP
I. Multiple choice question
1. Calculate Current Account (CA) if (Million USD):
Export goods 79,500 Import goods 75,400
Export services 14,800 Import services 25,050
Personal transfer payment 6,930 Personal transfer receipt 1,180
2. Calculate Financial Account (FA) if (Million USD):
Category Assets Liabilities
FDI Increase by 90 Increase by 3,520
FPI Decrease by 100 Decrease by 305
Other investments Increase by 1,640 Decrease by 1,020
3. Providing the following changes:
Balance Value (million: USD)
Current Account - 1,541
Capital Account - 150
Financial Account + 3,506
Errors and omissions ?
Reserve assets and related items + 955
Determine the value of the missing item?
4. Given: Reserve assets decrease by 250 million USD. Central Bank borrows IMF 100 million
USD. Determine the value of Reserve assets and Related items?
II. Exercise
#Record the following transactions into BOP of Vietnam:
(1) Vietnamese workers in Korea repatriate 200 million USD.
(2) The Vietnamese enterprises pays the British company a transport fee of 2 million GBP.
(3) WB forgives a 50 million USD debt owed by Vietnam.
(4) Vietnam supports the natural disaster areas in Laos with 40 million USD, of which 25 million
is in goods, 10 million in medical support and 5 million in money.
(5) Vietnam issues bonds worth 100 million USD abroad, 60 million is used to import machinery
and equipment, the rest is used to pay debt to ADB.
(6) The Japanese enterprise sells goods to the Vietnam company worth of 50 million JPY with
deferred payment.
(7) The Vietnamese exporter is prepaid by the British importer for goods worth of 100 million
GBP.
TOPIC 3: FOREX
I. Multiple choice question
1. Assume that E(GBP/USD) = 1.3398 – 1.3407. How much GBP would you gain from selling
200,000 USD?
2. Assume that E(USD/JPY) = 142.04 -142.12. How much JPY do you need to buy 300,000 USD?
TOPIC 4: IRP
I. Multiple choice question
1. The USD and AUD annual interest rates are 3% and 4.5% respectively. Based on the
international Fisher effect, calculate the expected inflation rate of GBP, knowing that the expected
inflation rate of AUD is 1.5% per annum?
2. The HKD and USD annual interest rates are 6.05% and 4.5% respectively. Compute the 3-month
forward point based on CIP?
3. The CAD and USD annual interest rates are 4.5% and 3% respectively. Calculate the 60-day
forward rate according to CIP knowing that the USD/CAD spot rate is 1.3246?
4. The annual interest rates of USD and CHF are 5% and 2.4% respectively; the spot rate is 0.9788;
the 6-month forward rate is 0.9763. If you take a loan, which currency would you choose to borrow?
5. Assume that the one-year USD/VND forward exchange rate is 23,890 and the one-year expected
spot exchange rate is 23,850. How will you speculate in the foreign currency market to make
money? How much money will you make in VND?
II. Exercise
1. Apply PPP and IRP to solve the following:
Market data at the beginning of 20xx: USD interest rate is 4%/year and VND interest rate is
7.5%/year; the spot rate is 23,517; The expected real interest rate of two currencies is 2.5%/year
a. Calculate the expected inflation rates of USD and VND?
b. The 4-month forward exchange rate of commercial bank X is 23,615. How will you arbitrage in
the international money market to make money?
2. Suppose that the one-year interest rates of USD and SGD are 3.1% and 4.5% respectively. The
USD/SGD spot exchange rate is currently 1.5243.
a. Calculate the 7-month forward premium.
b. Show how you can make a speculation if the 5-month forward exchange rate is 1.5219.
Determine the expected profit.
3. Suppose that the one-year interest rates of USD and NZD are 5% and 3% respectively. The
NZD/USD spot exchange rate is currently 0.6166 and the 6-month forward exchange rate is 0.6229.
a. Show how you can make a covered interest arbitrage.
b. Determine profit/loss if a trader sells a 6-month forward contract worth 3 million NZD against
USD at the forward rate above if the spot exchange rate is 0.6238 after one year.
TOPIC 5: PPP
I. Multiple choice question
1. The prices of the "standard basket of goods" in Canada, Australia and the US are 3,100 CAD,
2,950 AUD and 2,000 USD, respectively. Determine the Purchasing power parity of USD/CAD,
AUD/USD, and AUD/CAD?
2. In 2022, prices of a standardized basket of good are 1,000 USD and 5,200 CNY. After one year,
these prices are 1,150 USD and 5,100 CNY. Suppose PPP holds, determine percentage change of
USD/CNY over one year.
3. The 2022, inflation rates of EUR and the USD are 3.5% and 6.2% respectively, E(EUR/USD)
= 1.0875. If PPP holds, determine the exchange rate after 4 months.
II. Exercise
1. Providing annual inflation rates of USD, CAD (% per annum):
Year Inflation rate The inflation Year Inflation rate The inflation
of USD rate of CAD of USD rate of CAD
2020 4.0 3.75 2022 4.25 3.0
2021 4.5 3.5 2023 5.0 2.0
Questions:
a. If PPP holds, calculate the percentage change of exchange rate USD/CAD from the end of 2023
to the end of 2020.
b. Calculate the exchange rate at the end of 2023 if exchange rate at the beginning of 2020: 1 USD
= 1.3075 CAD
2. Inflation rates of VND and USD are given as follows (% per annum):
Year Inflation rate Inflation rate Year Inflation rate Inflation rate
of USD of VND of USD of VND
2020 2.0 7.5 2022 3.25 7.25
2021 3.0 7.0 2023 3.5 6.5
Questions:
1. Calculate the exchange rate at the end of 2020 if exchange rate at the beginning of 2021: 1 USD
= 22,600 VND
2. Calculate the percentage of real overvaluation/undervaluation of 2 currencies if market
exchange rate at the end of 2023: 1 USD = 23,670 VND