QUESTION 50 The following information holds for the next two problems: Suppose the following information is available for a country in a given year, S (Private Savings) I (Private Domestic Investment) G (Government Spending) T (Tax Revenues) How much is the budget deficit of the country? $-500 billion $-300 billion $300 billion $500 billion $700 billion Billions of US dollars $1400 $800 $800 $500 QUESTION 51 The following table summarizes a country's balance of payments. Is this country experiencing a net capital inflow or outflow? By how much? Current account balance Capital account balance Financial account balance Net errors and omissions Reserves and related items Billions of US dollars -400 5 370 5 20 outflow by $395 outflow by $375 outflow by $25 inflow by $25 inflow by $375 QUESTION 52 How much is the current account balance of the country? $-500 billion $-300 billion $300 billion $500 billion $700 billion QUESTION 53 Suppose that the annual interest rate is 5% in the US and 2% in Germany, and that the spot exchange rate is $1.2/euro and the forward exchange rate, with one-year maturity, is $1.3/euro. If an equilibrium with no arbitrage opportunities is to be restored, what should be the US interest rate? (Assume all the other numbers remain the same.) 6.33% 7.25% 8.59% 10.50% 12.23% QUESTION 54 If the annual interest rate is 4% in the US and 6% in Germany, then $ is expected to O appreciate, 2% appreciate, 3% appreciate, 4% depreciate, 2% E)depreciate, 3% against euro by. 96. QUESTION 55 Suppose that a Big Mac costs $2.5 in the US and 275 yen in Japan today. If the actual exchange rate is yen105/$ in the market. How much is the Big Mac PPP exchange rate? O100/$ 107/$ 110.5/$ O110/$ 115/$ QUESTION 56 Suppose that a Big Mac costs $2.5 in the US and 275 yen in Japan today. If the actual exchange rate is yen105/$ in the market. According to the Big Mac prices, the Japanese yen is over/under valued compared to US $ by %. O undervalued by 3.46% O undervalued by 4.76% O overvalued by 3.46% O overvalued by 4.76% O overvalued by 8.56% QUESTION 57 If the $/ bid and ask prices are $1.75 and $1.77, respectively. What is the corresponding /$ bid prices? O 0.5650 O 0.5667 O 0.5691 O 0.5714 O 0.5811 QUESTION 58 If the $/ bid and ask prices are $1.75 and $1.77, respectively. If you want to sell 1,000, how much dollars would you get? $1,500 $1,700 $1,720 $1,750 $1,780 QUESTION 59 The SF/$ spot exchange rate is 1.50 and the AUD/S is 1.3. What is the SF/AUD cross exchange rate? 0.95 O 1.15 O 1.28 O 1.50 O 1.75 QUESTION 60 Assume the following prices. If a customer wants to sell 1,000,000 for, how much will he get? American Terms (S/) ($/) Bid European Terms(/$) (/$) Ask British Pound () 1.4578 1.4633 Bid 0.6834 Ask 0.6860 Euro () 1.1612 1.1615 0.8610 0.8612 O 1,134,512 1,212,333 O 1,233,255 O 1,255,101 QUESTION 65 For the next 6 questions suppose the following data holds: Plains States Manufacturing has just signed a contract to sell agricultural equipment to Boschin, a German firm, for 1,250,000. The sale was made in June with payment due six months later in December. Because this is a sizable contract for the firm and because the contract is in Euros rather than dollars, Plains States is considering several hedging alternatives to reduce the exchange rate risk arising from the sale. To help the firm make a hedging decision you have gathered the following information. The spot exchange rate is $1.16/ The six month forward rate is $1.13/ Plains States' cost of capital is 12% per annum The Euro zone 6-month borrowing rate is 7% per annum (or 3.5% for 6 months) The Euro zone 6-month lending rate is 5% per annum (or 2.5% for 6 months) The U.S. 6-month borrowing rate is 6% per annum (or 3% for 6 months) The U.S. 6-month lending rate is 4.5% per annum (or 2.25% for 6 months) December put options for 625,000; strike price $1.17, premium price is 1.5% Plains States' forecast for 6-month spot rates is $1.15/ The budget rate, or the lowest acceptable sales price for this project, is $1,425,000 or $1.14/ Plains States chooses to hedge its transaction exposure in the forward market at the available forward rate. The payoff in 6 months will be $1,125,000 $1,412,500 O $1,437,500 $1,450,500 QUESTION 66 Plains States would be by an amount equal to with a forward hedge than if they had not hedged and their predicted exchange rate for 6 months had been correct. worse off; $25,000 better off; $20,000 better off; $25,500 worse off; $50,500 QUESTION 67 Plains States could hedge the Euro receivables in the money market. Using the information provided how much would the money market hedge return in six months assuming Plains States reinvests the proceeds at the U.S. investment rate? $1,378,523 O $1,432,488 O $1,440,333 $1,476,667 QUESTION 68 What is the euro borrowing interest rate that makes the money market hedge equivalent to the forward hedge? 7.64% 8.13% 8.33% 9.93% QUESTION 69 What is the cost of a put option hedge for Plains States' Euro receivable contract? (Note: Calculate the cost in future value dollars and assume the firm's cost of capital as the appropriate interest rate for calculating future values.) O $20,231 O $21,236 $23,055 $24,435 QUESTION 61 If the following information holds, the 6-month forward bid price for dollars as denominated in Japanese yen is. Yen (/S) Pound (S/) mid bid Spot forward- 114.25 114.2 ask 114.3 mid 1.6525 bid ask 1.6523 1.6527 1m 114.02 -24 -22 1.6500 -26 -24 forward- 6m 112.10 -220 -210 1.6368 -160 -154 O24 112/5 114.22/$ 115.12/$ QUESTION 62 For the next 3 questions suppose the following data holds: Philadelphia Exchange Swiss Franc (SF) 65.21 Calls Puts SF 62,500 cents per unit Vol. Last Vol. Last 64 May 20 1.95 10 0.30 65 May 30 0.50 50 0.50 64 Sep 20 2.10 40 0.40 65 Sep 10 1.20 20 0.65 What is the time value of 65 Sep SF call option? O $.70 $.99 $1.20 O $1.25 $1.66 QUESTION 63 Suppose you buy one May 64 SF call option on April 22 and the price of SF goes up to $.70 at the expiration. If you exercise the option what is the profit from the investment? One contract of SF option is for SF 62,500. $2,200.00 $2,531.25 $2,755.50 $2,812.50 $3,335.50 QUESTION 64 Suppose you buy one May 65 SF put option on April 22 and the price of SF goes down to $.60 at the expiration. If you exercise the option what is the profit from the investment? One contract of SF option is for SF 62,500. $2,200.00 O $2,531.25 $2,755.50 O $2,812.50 $3,335.50