Clear answers please.
QUESTIONS On which rate would you deal in each of the problems below? 1. You have just received a 1,000,000 GBP payment. You want to convert these pounds into dollars. You get a quote of 1.5457/61. 2. You have to buy Australian dollars to make a large payment. The quote is .5535/37. 3. You need to make a SEK payment. You get a quote of 9.3854/9.3934. 4. You have received a large JPY denominated dividend which you want to convert into dollars. The quote is 123.19/23.ME4. Assume that the one-year forward rates for starting dates 0, 1, 2, 3, and 4 are 10, 10.25, 10.50, 10.55, and 10.60 percent. Compute the term structure of spot interest rates for maturities of one to five years.E2. A bank offers you the following rates: 10 percent fixed, or (when you borrow floating-rate) LIBOR + 2 percent. You prefer to borrow floating-rate, as you expect a drop in interest rates. Another bank offers you LIBOR + 1.5 percent, but asks a substantial up-front fee. How can you compute which bank offers the better terms?vestion 4 O True or false? (a) Environmental economics is a development of the neo-classical paradigm. (b) Ecological economics proposes that the stock of natural capital available may impose limits to economic growth. (c) A key objective of environmental economics is to ensure that the design and implementation of environmental policy reduces degradation to efficient levels.(b) Direct regulation, or "command-and-control policies", have been pop- ular with regulators and also (relatively speaking) with the regulated firms. However, economist have long pointed out that they have certain drawbacks compared to alternative solutions to an environ- mental problem. Discuss the drawbacks with comman-and-control policies.Question: According to economic theory, the efficient amount of pollution in the economy is the point at which: a. the total benefits of eliminating pollution are equal to the total costs of eliminating poHuuon. b. the marginal benefits of reducing pollution further are equal to the marginal costs of reducing pollution further. c. there is no pollution in the economy. d. the marginal benefit of reducing pollution further is zero. ME1. Sometimes a fixed-for-fixed currency swap is described as a combination of independent forward contracts. Show that, to replicate a fixed-for-fixed currency swap by a series of independent contracts, one needs identical term structures across the two currencies. Hint: Denote the foreign swap rate by s*, and the domestic swap rate by s. Consider a swap where the foreign leg has a nominal value of one unit of foreign currency, and the home currency leg has a value of S, units of home currencies. The foreign-currency cash flows from a swap are s* units of foreign currency at every interim date, and 1 + s* at the end; and the home-currency cash flows from a swap are S, x s units of home currency at every interim date, and S, x (1 + s) at the end. What home-currency cash flows does one receive or pay if each of the foreign-currency cash flows is converted separately into home currency by a forward contract of that specific maturity, rather than exchanging the entire series into a series of home currency cash flows by one single swap contract? Under what conditions on the term structure of returns are the resulting home-currency cash flows of the form (S, x s at the interim dates, and S, x (1 + $) at the end)
