QUESTION 11

FOREX MARKETS. In order to execute a covered interest arbitrage, you sell 1-year euro futures. What is your rate of return on your overseas investments - after converting your investment proceeds back to USD?

A. 4.045%

B. 4.492%

C. 7.125%

D. None of the above

QUESTION 12

FOREX MARKETS. In order for interest rate parity to hold, what must be the forward exchange rate?

A. $1.8648

B. $1.3312

C. $1.2501

D. $1.2441

E. None of the above

QUESTION 13

FOREX MARKETS. For this and the next 6 questions. Suppose there is an interest rate spread of 1% between the United States and South Africa (S.A.). The yield on a one-year U.S. Treasury security is 5% (rd = 5%) while the yield on a comparable South African security is 6% (rF = 6%). You wish to invest $50,000. The indirect quote for the rand-dollar (R/$) spot exchange rate is 7 South African rand (R7) per dollar. Suppose you invest your funds in U.S. securities for 6 months. Calculate the future value of your investment

A. $51,500

B. $50,500

C. $51,250

D. $53,000

E. None of the above

QUESTION 14

FOREX MARKETS. If you chose, instead, to invest your funds in South African securities for 6 months, what is the future value of your investment?

A. R 53,000

B. R 360,500

C. R 358,750

D. R 51,500

E. R 371,000

QUESTION 15

FOREX MARKETS. To cover your South African investment, you execute a covered interest arbitrage by selling a six-month forward contract in rand. What is the dollar equivalent of your S.A. investment if the 6-month forward rate is R7.125?

A. $49,122.81

B. $50,596.49

C. $2,568,562.50

D. $51,500

E. None of the above