ii) The company's worldwide retirement benefits unit is located in the United States and has an obligation to pay its retired French employees Ffr 20 million monthly. What risk does this unit face and how could it hedge the risk? 3 Marks iii) Given the transactions of the production and retirement units as given previously, what do you conclude are the exchange rate risks faced by the company as a whole in France? Does the company need to enter into forward contracts? 4 Marks 4) Answer briefly the following questions: a) What are discount points, and why do some mortgage borrowers choose to pay them? b) Differentiate between conventional mortgage loans and insured loans. c) Write briefly on securitized mortgage. d) When the Euro appreciates, are you more likely to drink California or French wine? Explain e) "A country is always worse off when its currency is weak". Is this statement true, false or uncertain? Explain your answer. f) If there is a strike in Germany, making it harder to buy German goods, what will happen to the value of the Euro? g) If the president of your country announces that he will reduce inflation with a new anti- inflation program. If the public believes him, predict what will happen to the exchange rate for your country's currency? h) Why has the development of overnight loan markets made it more likely that banks will hold fewer excess reserves? i) "Bank managers should always seek the highest return possible on their assets". Is this statement true false or uncertain? Explain your answer. j) "Banking has become a more dynamic industry because of more active liability management. Is this statement true, false or uncertain? Explain your answer. 20 Marks ii) The company's worldwide retirement benefits unit is located in the United States and has an obligation to pay its retired French employees Ffr 20 million monthly. What risk does this unit face and how could it hedge the risk? 3 Marks iii) Given the transactions of the production and retirement units as given previously, what do you conclude are the exchange rate risks faced by the company as a whole in France? Does the company need to enter into forward contracts? 4 Marks 4) Answer briefly the following questions: a) What are discount points, and why do some mortgage borrowers choose to pay them? b) Differentiate between conventional mortgage loans and insured loans. c) Write briefly on securitized mortgage. d) When the Euro appreciates, are you more likely to drink California or French wine? Explain e) "A country is always worse off when its currency is weak". Is this statement true, false or uncertain? Explain your answer. f) If there is a strike in Germany, making it harder to buy German goods, what will happen to the value of the Euro? g) If the president of your country announces that he will reduce inflation with a new anti- inflation program. If the public believes him, predict what will happen to the exchange rate for your country's currency? h) Why has the development of overnight loan markets made it more likely that banks will hold fewer excess reserves? i) "Bank managers should always seek the highest return possible on their assets". Is this statement true false or uncertain? Explain your answer. j) "Banking has become a more dynamic industry because of more active liability management. Is this statement true, false or uncertain? Explain your answer. 20 Marks
