8.List three types of currency derivatives used in the Forward Market. 3 Marks

9.Forward Contract. The Wolfpack Corporation is a U.S. exporter that invoices its exports to the United Kingdom in British pounds.If it expects that the pound will appreciate against the dollar in the future, should it hedge its exports with a forward contract?Explain.

4 Marks

10.Chapman Co. is a privately owned MNC in the Canada that plans to engage in an initial public offering (IPO) of stock, so that it can finance its international expansion. At the present time, world stock market conditions are very weak but are expected to improve.The Canadian market tends to be weak in periods when the other stock markets around the world are weak.A financial managerofChapman Co. recommends that it wait until the world stock markets recover before it issues stock. Another manager believes that Chapman Co. could issue its stock now even if the price would be low, since its stock price should rise later once world stock markets recover. If Chapman is really trying to raise equity funds (cash) who is correct? Explain your answer by stating:

a)In stock markets, what is an IPO, and

b)why do companies issue IPO's.

c) What does the Canadian company Shopify Inc do?

5 Marks

11.Foreign Exchange. You live in the USA and just came back from Canada, where the Canadian dollar was worth $0.77. You still have C$300 from your trip and could exchange them for dollars at the airport, but the airport foreign exchange desk will only buy them for $0.70 U.S. Next week, you will be going to Mexico and will need pesos. The airport foreign exchange desk will sell you pesos for $0.07 U.S. per peso. You met a tourist at the airport who is from Mexico and is on his way to Canada. He is willing to buy your C$300 for 2,750 pesos. Should you accept the offer or cash the Canadian dollars in at the airport? Yes, or No? Explain. 4 Marks

12.What determines Exchange Rates?

a)What are the very basic laws that determine the value of a currency? 2 Marks

b)In equilibrium, what is the relationship between these two factors? 2 Marks

c)From the Canadian perspective (Canada as home country), draw a diagram showing the equilibrium price and the equilibrium quantity for the Mexican peso. Label the diagram. 4 Marks

13.Inflation Effects on Exchange Rates. Assume that the U.S. inflation rate becomes high relative to Canadian inflation.Other things being equal, how should this affect the:

(a) U.S. demand for Canadian dollars,

(b) supply of Canadian dollars for sale, and

(c) equilibrium value of the Canadian dollar?

Explain in words and with a fully labeled demand and supply diagram of the market for Canadian dollars. 6 Marks

14.Interest Rate Effects on Exchange Rates. Assume U.S. interest rates fall relative to British interest rates.Other things being equal, how should this affect the:

(a) U.S. demand for British pounds,

(b) supply of pounds for sale, and

(c) equilibrium value of the pound?

Explain in words and with a fully labeled demand and supply diagram of the market for British pounds. 6 Marks