The equilibrium state in which covered interest arbitrage is no longer possible is called interest rate parity (IRP).
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Carl is an option writer. In anticipation of a depreciation…
Carl is an option writer. In anticipation of a depreciation of the British pound from its current level of $1.50 to $1.45, he has written a call option with an exercise price of $1.51 and a premium of $.04. If the spot rate at the option’s maturity turns out to be $1.54, what is Carl’s profit or loss per unit (assuming the buyer of the option acts rationally)?
Blake Inc. needs €1,000,000 in 30 days. It can earn 6 percen…
Blake Inc. needs €1,000,000 in 30 days. It can earn 6 percent annualized on a German security. The current spot rate for the euro is $1.00. Blake can borrow funds in the U.S. at an annualized interest rate of 5 percent. If Blake uses a money market hedge to hedge the payable, what is the cost of implementing the hedge?
You are a speculator who sells a put option on Canadian doll…
You are a speculator who sells a put option on Canadian dollars for a premium of $.05 per unit, with an exercise price of $.86. The option will not be exercised until the expiration date, if at all. If the spot rate of the Canadian dollar is $.78 on the expiration date, your net profit per unit is:
Consider an MNC that is exposed to the Bulgarian lev (BGL) a…
Consider an MNC that is exposed to the Bulgarian lev (BGL) and the Romanian leu (ROL). 30% of the MNC’s funds are lev and 70% are leu. The standard deviation of exchange movements is 15% for lev and 10% for leu. The correlation coefficient between movements in the value of the lev and the leu is .85. Based on this information, the standard deviation of this two-currency portfolio is approximately:
The spot rate of British pound is quoted at $1.49. The 90-da…
The spot rate of British pound is quoted at $1.49. The 90-day forward rate exhibits a 2% premium. What is the 90-day forward rate of the pound?
The basic difference(s) between forward and futures contract…
The basic difference(s) between forward and futures contracts is that: (Select all that apply.)
Both call and put option premiums are affected by the level…
Both call and put option premiums are affected by the level of the existing spot price relative to the strike price; for example, a high strike price relative to the spot price will result in a relatively high premium for a put option but a relatively low premium for a call option.
When you own ____, there is no obligation on your part; howe…
When you own ____, there is no obligation on your part; however, when you sell ____, there is an obligation on your part. (Select all that apply.)
Also known as the “central banks’ central bank,” the _______…
Also known as the “central banks’ central bank,” the __________ attempts to facilitate cooperation among countries with regard to international transactions and provides assistance to countries experiencing a financial crisis.