Practice for Chapter 05 International Financial Management Name: (O1). The current spot exchange rate is $1.5S/E and the three month forward rate is $1.sOE. You enter into a short position on 1,000. At maturity, the spot exchange rate is $1.60. How much have you made or lost? A). Lost S100 B). Made 100 C). Lost S150 D). Made $150 (02). A dealer in British pounds who thinks that the pound is about to appreciate A). May want to widen his bid-ask spread by raising his ask price B). May want to lower his bid price C). May want to lower his ask price D). None of the above (03). It is common practice among currency traders worldwide to both price and trade currencies against the of U.S. dollar. In fact, BIS statistics indicate that transactions from non-bank dealers occupy foreign exchange interbank markets in 2016. A). 93 percent B). 47 percent C). 53 percent D). 7 percent (04). You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as S1.20- 1.00 and the dollar-pound exchange rate is quoted at $1.80 1.00. If a bank quotes you a cross rate of 1.00 1.50 how much money can an astute trader make? A). No arbitrage is possible B). $1,160,000 C). $500,000 D). $250,000 (05). Most Interbank trades are A). Speculative or arbitrage transactions B). Simple order processing for the retail client C). Overnight loans from one bank to another D). Brokered by dealers (06). Deutsche Bank announces the following spot exchange rate: S(S/E)-1.9712-1.9717. Credit Lyonnais announces the following spot exchange rate: S(S e)-1.4738-1.4742. What will be ideal exchange rate about S(e/E)? A). 1.3310 B). 1.3378 C). 1.3317 D). 1.3371 (07). For a U.S. trader working in American quotes, if the forward price is higher than the spot price A). The currency is trading at a premium in the forward market B). The currency is trading at a discount in the forward market C). You should buy at the spot, hold on to it and sell at the forward D). All of the above-it really depends if you're talking American or European quotes Essay: Please explain why IRP must hold. (15%)