help me please with these questions for home work that is due in 2 hours

. In which case will locational arbitrage most likely be feasible? (Points : 3.5) One bank's ask price for a currency is greater than another bank's bid price for the currency. One bank's bid price for a currency is greater than another bank's ask price for the currency. One bank's ask price for a currency is less than another bank's ask price for the currency. One bank's bid price for a currency is less than another bank's bid price for the currency. Question 2. 2. Triangular arbitrage tends to force a relationship between the interest rates of two countries and their forward exchange rate premium or discount. (Points : 3.5) True False Question 3. 3. Due to ____, market forces should realign the relationship between the interest rate differential of two currencies and the forward premium (or discount) on the forward exchange rate between the two currencies. (Points : 3.5) forward realignment arbitrage triangular arbitrage covered interest arbitrage locational arbitrage Question 4. 4. The Canadian government decides to implement the currency intervention as its policy tool. Therefore, if the Canadian government wants to reduce its unemployment, the Canadian government should (Points : 3.5) buy Canadian dollars with foreign currency to strengthen Canadian dollars. buy Canadian dollars with foreign currency to weaken Canadian dollars. sell Canadian dollars for foreign currency to weaken Canadian dollars. sell Canadian dollars for foreign currency to strengthen Canadian dollars. Question 5. 5. Which of the following is NOT TRUE regarding IRP (Interest Rate Parity) and PPP (Purchasing Power Parity)? (Points : 3.5) The IRP suggests that a currency's forward rate will change according to interest rate differentials. PPP suggests that a currency's spot rate will change according to inflation rate differentials. IRP suggests that a currency's spot rate will change according to interest rate differentials. All of the above are true. Question 6. 6. A trader predicts that there will be limited price movements of USD/ in the near future but does not know which direction the price will move, so he decides to use the \"short straddle forex options trading strategy\" to make money in the forex market. The information for the call options and put options and put available for him are given below: Call option and put option strike price = $1.50/ Put option premium = $0.035 per unit Call option premium = $0.042 per unit One option contract represents 100,000 What is/are break-even point(s) (i.e., the exchange rate(s)) for the straddle? (Points : 3.5) The lower break-even point is $1.535/, and the higher break-even point is $1.542/. The lower break-even point is $1.465/, and the higher break-even point is $1.542/. The lower break-even point is $1.423/, and the higher break-even point is $1.577/. The lower break-even point is $1.535/, and the higher break-even point is $1.577/. Question 7. 7. Continued from Question 6, what is the point (i.e., the exchange rate) that the maximum profit occurs? (Points : 3.5) $1.465/ $1.50/ $1.535/ $1.542/ $1.577/ Question 8. 8. Continued from Question 6, What are ranges of the exchange rate movement that guarantee profits? And what is the maximum possible loss? (Points : 3.5) The exchange rate must fall between $1.535/ and $1.542/ to guarantee and the maximum possible loss is infinity. The exchange rate must fall between $1.465/ and $1.542/ to guarantee and the maximum possible loss is infinity. The exchange rate must fall between $1.423/ and $1.577/ to guarantee and the maximum possible loss is infinity. The exchange rate must fall between to $1.535/ and $1.577/ guarantee and the maximum possible loss is infinity. None of the above is correct. Question 9. 9. Assume the following information: Bid price of Australian dollar Ask price of Australian dollar H.B.C. Bank $.747 $.743 $.746 J.P. Bank $.748 Given this information, is locational arbitrage possible? If so, explain the steps involved in locational arbitrage, and compute the profit from this arbitrage if you had $1,000,000 to use. (Points : 3.5) Yes, locational arbitrage is possible. One could purchase Australian dollars at H.B.C Bank for $.743 and sell them to J.P. Bank for $.745. With $1 million available, my profit will be $2,000. Yes, locational arbitrage is possible. One could purchase Australian dollars at H.B.C Bank for $.746 and sell them to J.P. Bank for $.747. With $1 million available, my profit will be $1,000. Yes, locational arbitrage is possible. One could purchase Australian dollars at H.B.C Bank for $.746 and sell them to J.P. Bank for $.747. With $1 million available, my profit will be $2,691.79. Yes, locational arbitrage is possible. One could purchase Australian dollars at H.B.C Bank for $.743 and sell them to J.P. Bank for $.748. With $1 million available, my profit will be $5,000. Yes, locational arbitrage is possible. One could purchase Australian dollars at H.B.C Bank for $.743 and sell them to J.P. Bank for $.748. With $1 million available, my profit will be $5,383.58. Question 10. 10. Assume the following information: You have $1,000 (US dollars) to invest: Current spot rate of euro = $0.82 1-year forward rate of euro = $0.80 1-year deposit rate in U.S. = 5% 1-year deposit rate in Europe = 6.5% If you use covered interest arbitrage for a 1-year investment, what will be the amount of U.S. dollars you will have after one year? (Points : 3.5) $1,039.02. $1,076.25. $1,079.00. $1,056.00 $1,065.00 Question 11. 11. Continued from the above question, for the covered interest arbitrage to work for a U.S. investor with U.S. dollars, what does the following condition need to hold? (Points : 3.5) The yield from the covered interest arbitrage strategy needs to be higher than 1-year deposit rate in Europe. The yield from the covered interest arbitrage strategy needs to be higher than 1-year deposit rate in U.S. The yield from the covered interest arbitrage strategy needs to be lower than 1-year deposit rate in Europe. The yield from the covered interest arbitrage strategy needs to be lower than 1-year deposit rate in U.S. Question 12. 12. Which of the following is a correct statement? (Points : 3.5) Under a freely floating exchange rate system, U.S. inflation would have a greater impact on inflation in other countries than it would under a fixed exchange rate. Nonsterilized intervention is intervention by a central bank in the foreign exchange market without adjusting for the change in money supply. Under the freely floating exchange rate system, exporters are insulated from the risk that the currency will depreciate over time. An advantage of fixed exchange rates is that a country with fixed exchange rates is more insulated from unemployment problems in other countries. Question 13. 13. Assume the following information: Bid Ask C$ in $ (i.e. $/C$) $0.96 $0.99 MYR in $ (i.e. $/MYR) $0.25 $0.26 C$ in MYR (i.e. MYR/C$) MYR3.98 MYR3.99 You have $10,000. Can you use triangular arbitrage to generate a profit? (Points : 3.5) Yes, I can earn arbitrage profits of $5.05. Yes, I can earn arbitrage profits of $74.61. Yes, I can earn arbitrage profits of $14,985.58. Yes, I can earn arbitrage profits of $14,760.80. No, it's impossible to make triangular arbitrage profits. Question 14. 14. Which of the following is/are NOT true? I. When using indirect intervention, a central bank is likely to focus on interest rates. II. An advantage of a fixed exchange rate system is that governments are not required to constantly intervene in the foreign exchange market to maintain exchange rates within specified boundaries. III. Under the system known as the "dirty" float, official boundaries for the exchange rate exist, but they are wider than they are under a fixed exchange rate system. (Points : 3.5) I II III I & III II & III Question 15. 15. Given a home country and a foreign country, purchasing power parity (PPP) suggests that: (Points : 3.5) a home currency will depreciate if the current foreign inflation rate exceeds the current home inflation rate. a home currency will appreciate if the current home interest rate exceeds the current foreign interest rate. a home currency will appreciate if the current foreign inflation rate exceeds the current home inflation rate. a home currency will depreciate if the current home interest rate exceeds the current foreign interest rate. Question 16. 16. Assume that the German investors are benefiting from covered interest arbitrage due to high interest rates on Canadian dollars. Which of the following forces should result from the act of this covered interest arbitrage? (Points : 3.5) downward pressure on the Canadian dollar's spot rate, and upward pressure on the Canadian dollar's forward rate. upward pressure on the Canadian dollar's spot rate, and upward pressure on the Canadian dollar's forward rate. upward pressure on the Canadian dollar's spot rate, and downward pressure on the Canadian dollar's forward rate. downward pressure on the Canadian dollar's spot rate, and downward pressure on the Canadian dollar's forward rate. Question 17. 17. The inflation rate in the U.S. is 7%, while the inflation rate in Japan is 4%. The current exchange rate for the Japanese yen () is $0.0075. After supply and demand for the Japanese yen has adjusted in the manner suggested by purchasing power parity, the new exchange rate for the yen will be: (Points : 3.5) $0.0079. $0.0073. $0.0077. $0.0070. Question 18. 18. If the Fed desires to strengthen the dollar without affecting the dollar money supply, it should: (Points : 3.5) exchange dollars for foreign currencies, and sell some of its existing Treasury security holdings for dollars. exchange foreign currencies for dollars, and sell some of its existing Treasury security holdings for dollars. exchange dollars for foreign currencies, and buy existing Treasury securities with dollars. exchange foreign currencies for dollars, and buy existing Treasury securities with dollars. Question 19. 19. Assume that Japan and the United States frequently trade with each other. Under the freely floating exchange rate system, high unemployment in the U.S. will place ____ pressure on Japanese yen, and result in ____ inflation in Japan. (Points : 3.5) downward; unchanged downward; higher upward; unchanged upward; higher none of the above Question 20. 20. Brookshire, Inc. (U.S. based MNC) needs to invest ten million Cambodian riels in its Cambodian subsidiary to support local operations today. Brookshire would like its subsidiary to repay the Cambodian riels in one year. To hedge the exchange rate risk arising from this financing support, Brookshire would engage in a swap transaction involving a forward contract. Thus, in accordance with the swap transaction, Brookshire would: (Points : 3.5) convert the dollars to Cambodian riels in the spot market today and convert dollars to Cambodian riels in one year at the prevailing spot rate one year later. convert the dollars to Cambodian riels in the spot market today and convert Cambodian riels to dollars in one year at today's one-year forward rate. convert the Cambodian riels to dollars in the spot market today and convert Cambodian riels to dollars in one year at today's one-year forward rate. convert the dollars to Cambodian riels in the spot market today and convert Cambodian riels to dollars in one year at the prevailing spot rate one year later. Question 21. 21. PWG (a U.S. based firm) negotiate a conditional currency put options with a bank to hedge its accounts receivable of 5 million euros due on March 31. PWG will only exercise its option on the due date. The terms of the conditional currency put options are as follows: K (exercise price) = $1.10 per euro, Trigger = $1.14 per euro, premium = $0.04 per eruo, expiration date = March 31. If the spot rate on the due date, i.e., March 31, is $1.15 per euro, what is the amount of U.S. dollar PWG expect to receive for its 5 million euros? (Points : 3.5) $5.30 million. $5.50 million. $5.55 million. $5.70 million. $5.75 million. Question 22. 22. Johnson & Johnson, Inc., a U.S.-based MNC, will receive 15 million Thai baht on December 1. It is now September 1. Johnson & Johnson has negotiated a non-deliverable forward contract with its bank. The reference rate is the baht's closing exchange rate (in $) quoted by Thailand's central bank in 90 days. The baht's spot rate today is $.026. If the rate quoted by Thailand's central bank on December 1 is $.028, Johnson & Johnson will ____ $____. (Points : 3.5) pay; 30,000 be paid; 30,000 pay; 3,000 be paid; 3,000 none of the above Question 23. 23. There are sometimes no substitutes for traded goods, so this will reduce the probability that the Purchasing Power Parity shall hold. (Points : 3.5) True False Question 24. 24. Consider two countries that trade with each other, called X and Y. According to the discussion of the freely floating exchange rate system and the fixed exchange rate system from the textbook, inflation in Country X will have a greater impact on inflation in Country Y under the ____ system. Now, consider two other countries that trade with each other, called A andB. Country A can be insulated from unemployment in Country B under the ____ system. (Points : 3.5) freely floating exchange rate; fixed exchange rate freely floating exchange rate; freely floating exchange rate fixed exchange rate; freely floating exchange rate fixed exchange rate; fixed exchange rate Question 25. 25. A trader predicts that there will be great price movements of USD/British Pounds in the near future but does not know which direction the price will move, so he decides to use the \"long strangle forex options trading strategy\" to make money in the forex market. The information for the call options and put options and put available for him are given below: Call option premium on British Pounds () = $.008 Put option premium on British Pounds ()= $.006 Call option strike price 1= $1.62 Put option strike price 1= $1.63 One option contract represents 100,000 What is/are the break-even point(s)(i.e., exchange rate(s)) for this strangle? (Points : 3.5) The lower break-even point is $1.62/, and the higher break-even point is $1.63/. The lower break-even point is $1.606/, and the higher break-even point is $1.644/. The lower break-even point is $1.634/, and the higher break-even point is $1.644/. The lower break-even point is $1.616/, and the higher break-even point is $1.634/. The lower break-even point is $1.616/, and the higher break-even point is $1.644/. Question 26. 26. Continued from Question 25, if the trader uses two call options contracts and two put options contracts to construct the long strangle strategy, what will be the trader's profit if the spot rate on the option expiration date is $1.65? (Points : 3.5) $3,200 $6,000 $1,200 $6,800 Question 27. 27. The following regression analysis was conducted for the inflation rate information and exchange rate of the British pound: where is the error term, , eBP is the percentage change of the value of British pounds. Then (Points : 3.5) For purchasing power parity to hold, a0 = 0 and a1 = 2. For purchasing power parity to hold, a0 = 1 and a1 = 1. For purchasing power parity to hold, a0 = 0 and a1 = 1. For purchasing power parity to hold, a0 = 1 and a1 = 0. Question 28. 28. Which of the following is a correct statement? (Points : 3.5) A central bank may attempt to stimulate a stagnant economy by strengthening the value of the currency or raising the interest rate. A central bank may attempt to stimulate a stagnant economy by strengthening the value of the currency or lowering the interest rate. A central bank may attempt to stimulate a stagnant economy by weakening the value of the currency or raising the interest rate. A central bank may attempt to stimulate a stagnant economy by weakening the value of the currency or lowering the interest rate. Question 29. 29. Assume the following information is available for the U.S. and China: U.S. China Nominal one-year interest rate 2% 5% Expected inflation 3% 5.5% Spot rate ----$.1500/renminbi What shall the one-year forward rate for renminbi be if the interest rate parity holds? (Points : 3.5) $0.1544/renminbi $0.1457/renminbi $0.1464/renminbi $0.1536/renminbi $0.1500/renminbi Question 30. 30. Which of the following is NOT true? (Points : 3.5) Dollarization is the replacement of a country's official currency with U.S. dollars. A pegged exchange rate system does not expose to the exchange rate risk. A country that uses a currency board does not have complete control over its local interest rates. Question 31. 31. Bank of America believes the Singapore dollar (S$) will appreciate over the next 180 days from $.75 to $.78. The following annual interest rates apply: Currency Dollars Singapore dollar (S$) Lending Rate Borrowing Rate 6.73% 7.20% 6.80% 7.28% Bank of America has the capacity to borrow either S$10 million or $7 million. If Bank of America's forecast is correct, how shall Bank of America implement its speculating trading activities and what will its dollar profit be from speculation over the 180-day period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)? (30/360 convention used for the interest calculation, i.e., assuming 360 days a year) (Points : 3.5) Bank of America shall borrow $7 million at the annual rate of 7.20% for 180 days, convert $7 million to S$ at the rate of $0.80/S$, invest the SS$ converted at the annual rate of 6.80% for 180 days. Doing so, Bank of America will realize the profit of $295,120. Bank of America shall borrow S$10 million at the annual rate of 7.28% for 180 days, convert S$ 10 million to $ at the rate of $0.75/S$, invest the $ converted at the annual rate of 6.80 % for 180 days. Doing so, Bank of America will realize the profit of $288,290. Bank of America shall borrow $7 million at the annual rate of 7.20% for 180 days, convert $7 million to S$ at the rate of $0.75/S$, invest the SS$ converted at the annual rate of 6.80% for 180 ays. Doing so, Bank of America will realize the profit of $275,520. Bank of America shall borrow S$10 million at the annual rate of 7.28% for 180 days, convert S$ 10 million to $ at the rate of $0.80/S$, invest the $ converted at the annual rate of 6.73% for 180 days. Doing so, Bank of America will realize the profit of $307,050. Question 32. 32. Which one is NOT a disadvantage of a freely floating exchange rate system? (Points : 3.5) It can adversely affect a country that has high unemployment. It can adversely affect a country that has high inflation. The government may intervene to change the value of a given currency. The exchange rate risk is high and may be costly to manage. Question 33. 33. Which of the following is true? (Points : 3.5) If interest rate parity (IRP) exists, then triangular arbitrage will not be possible. Points below the IRP line represent situations where covered interest arbitrage is feasible from the perspective of domestic investors and results in a yield above what is possible domestically. Any point lying below the PPP (Purchasing Power Parity) line represents Purchasing Power Disparity and signals increased purchasing power of foreign goods. If the cross exchange rate of two nondollar currencies implied by their individual spot rates with respect to the dollar is less than the cross exchange rate quoted by a bank, locational arbitrage is possible. None of the above