Blog

In order to stimulate a stagnant economy, a government operating under a managed float may attempt to weaken its currency.

A firm buys a currency futures contract, and then decides before the settlement date that it no longer wants to maintain such a position. It can close out its position by:

The Bank of England is responsible for setting the monetary policy for the European countries participating in the euro.

If interest rate parity holds, and the international Fisher effect (IFE) holds, foreign currencies with relatively high interest rates should have forward discounts and those currencies would be expected to depreciate.

A U.S. corporation has purchased currency put options to hedge a 100,000 Canadian dollar (C$) receivable. The premium is $.01 and the exercise price of the option is $.76. If the spot rate at the time of maturity is $.86, what is the net amount received by the corporation if it acts rationally?

Assume the following information:   U.S. investors have $1,000,000 to invest: 1-year deposit rate offered by U.S. banks = 10% 1-year deposit rate offered on British pounds = 12% 1-year forward rate of Swiss francs = $1.375 Spot rate of Swiss franc = $1.40   Given this information:

Assume the following information:   Current spot rate of Australian dollar = $.64 Forecasted spot rate of Australian dollar 1 year from now = $.59 1-year forward rate of Australian dollar = $.62 Annual interest rate for Australian dollar deposit = 9% Annual interest rate in the U.S. = 6%   Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is ____%.

Assume you are the a financial analyst of a firm tasked with managing the firm’s exposure to exchange rate fluctuations. Briefly and individually, address the relevance of each of the following issues as they relate to the firm’s level of transaction, operating, and/or translation exposure. a. The degree to which the currency of a particularly country in which the firm has considerable operations is correlated with the local currency.   b. The degree to which the portfolio of currencies in which the firm has operations are correlated with one another.   c. The location of the firm’s competition.   d. The currency of denomination (or location) in which the firm has its input costs and revenues.  

Frank is an option speculator. He anticipates the Danish kroner to appreciate from its current level of $.18 to $.21. Currently, kroner call options are available with an exercise price of $.17 and a premium of $.03. Should Frank attempt to buy this option? If the future spot rate of the Danish kroner is indeed $.21, what is his profit or loss per unit?

When comparing the forward hedge to the money market hedge, the MNC can easily determine which hedge is more desirable, because the cost of each hedge can be determined at the time of the hedge.