Blog

All else the same, if a bank’s liabilities are more sensitive to interest rate fluctuations than are its assets, then ________ in interest rates will ________ bank profits.

Spears Co. will receive SF1,000,000 in 30 days. Use the following information to determine the total dollar amount received (after accounting for the option premium) if the firm purchases and exercises a put option:  Exercise price = $.62 Premium = $.02 Spot rate = $.61 Expected spot rate in 30 days = $.57 30-day forward rate = $.63

According to the international Fisher effect, if U.S. investors expect a 5% rate of domestic inflation over one year, and a 2% rate of inflation in European countries that use the euro, and require a 3% real return on investments over one year, the nominal interest rate on one-year U.S. Treasury securities would be:

Dubas Co. is a U.S.-based MNC that has a subsidiary in Germany and another subsidiary in Greece. Both subsidiaries frequently remit their earnings back to the parent company. The German subsidiary generated a net outflow of €2,000,000 this year, while the Greek subsidiary generated a net inflow of €1,700,000. What is the net inflow or outflow as measured in U.S. dollars this year? The exchange rate for the euro is $0.70.

High borrowing firm net worth helps diminish the moral hazard problem by ______________________.

Assume that Smith Corporation will need to purchase 200,000 British pounds in 90 days. A call option exists on British pounds with an exercise price of $1.62, a 90-day expiration date, and a premium of $.04. A put option exists on British pounds, with an exercise price of $1.69, a 90-day expiration date, and a premium of $.03. Smith Corporation plans to purchase options to cover its future payables. It will exercise the option in 90 days (if at all). It expects the spot rate of the pound to be $1.72 in 90 days. Determine the amount of dollars it expects to pay for the payables, including the amount paid for the option premium.

According to the IFE, when the nominal interest rate at home exceeds the nominal interest rate in the foreign country, the home currency should depreciate.

Which of the following operations benefits from depreciation of the firm’s local currency?

Conditional currency options are:

The premiums on both pound call and put options are $.03. The spot rate and the exercise price is $1.52. The spot rate at the time of this option expiration is expected to be $1.48. The speculators could expect to profit on which of the following: (Select all that apply.)