Float exists when a payee has received funds in a spendable form but these funds have not been withdrawn from the account of the payer. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
If volatility in foreign exchange markets, what is the relationship to the bid—ask spread? What will be an ideal response? ANSWER Answer: The bid-ask spread compensates the bank’s trader for making a market in the two currencies. This requires that the trader hold an inventory of foreign currency, and an increase in volatility […]
Date: September 19th, 2020
It is often said that interest rate parity is satisfied when the differential between the interest rates denominated in two currencies equals the forward premium or discount between the two currencies. Explain why this is an imprecise statement when the interest rates are not continuously compounded. ANSWER Answer: Interest rate parity requires the […]
Date: September 19th, 2020
If there is no systematic difference between the forward rate and the expected future spot rate, then the expected forward market return should be ________. A) zero B) greater than one C) equal to the stockholders’ required rate of return D) less than one but greater than zero ANSWER Answer: A
Date: September 19th, 2020
Describe the sequence of transactions required to do a covered interest arbitrage out of British pound and into U.S. dollars. What will be an ideal response? ANSWER Answer: To do a covered interest arbitrage out of ₤ and into U.S. dollars, one would borrow ₤ from the bank at the bank’s ask interest […]
Date: September 19th, 2020
Which one of the following would be the most logical reason to use a synthetic forward contract to hedge? A) forward contracts are not available in the currency of choice B) when time horizons are short, forward contracts can be expensive C) the underlying transaction is too risky D) the underlying transaction gives you an […]
Date: September 19th, 2020
Receipts and disbursements management techniques are aimed at minimizing a firm’s financing requirements by taking advantage of certain imperfections in the collection and payment system. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
A bond that promises to pay the owner a single payment denominated in euros or pounds is known as a ________ bond. A) debenture B) variable interest rate C) pure discount D) foreign ANSWER Answer: C
Date: September 19th, 2020
The term covered means the investment is ________ transaction foreign exchange risk. A) hedged against B) exposed to C) completely free from D) structured to activate forward contracts that free it from ANSWER Answer: A
Date: September 19th, 2020
The difference between the interest rate that a bank charges on its loans and the interest rate that the banks pay their depositors is known as the A) percent spread. B) arbitrage opportunity. C) bid-ask spread. D) covered interest arbitrage opportunity. ANSWER Answer: C
Date: September 19th, 2020
