During the 1990s the countries of Mexico and Argentina went from economic paupers with huge foreign debts (capital account deficits) to countries posting strong economic growth and welcoming foreign investment. What would you expect these changes to do to their current account balances? What will be an ideal response? ANSWER Answer: One would […]
Some investors think that Prestige Entertainment’s repurchase program was a bad deal for shareholders, because the company paid too much for its repurchased shares. Over the last quarter, Prestige repurchased 717.16 million shares at an average price of $17.35 per share. Shares outstanding are now 11,235.51M and the stock price is $12.01, which analysts regard […]
How is the forward value date calculated on a 90-day forward contract? What will be an ideal response? ANSWER Answer: To find the delivery date for a 90-day forward contract, one first finds the spot value date, which is typically two business days in the future relative to the day that the contract […]
If you were asked to forecast the future spot rate of a currency, how much of the probability distribution of the rate is between plus or minus 2 standard deviations? A) 12.55% B) 24.55% C) 62.87% D) 95.44% ANSWER Answer: D
Why would an MNC use a spot—forward swap? Fill in the blank with correct word. ANSWER Answer: A spot-forward swap involves either the purchase of foreign currency spot against the sale of the same amount of foreign currency forward, or the sale of foreign currency spot against the purchase of the same amount […]
It is 1998. The spot and 30-day forward rates for the Dutch guilder are $.3075 and $.3120, respectively. The guilder is said to be selling at a forward A) premium of 16.83% B) premium of 17.56% C) discount of 6.39% D) discount of 15.10% ANSWER Answer: B
What is the statistical interpretation of the expected future spot rate? Fill in the blank with correct word. ANSWER Answer: The expected future spot rate is the conditional mean of the probability distribution of future spot rates. The probability distribution describes all of the possible realizations (or ranges of realizations) of the future […]
What is a forward—forward swap? Fill in the blank with correct word. ANSWER Answer: A forward-forward swap involves either the purchase of foreign currency at a short maturity forward against the sale of the same amount of foreign currency at a longer maturity forward, or the sale of foreign currency at the short […]
One of the major reasons for the existence of the forward market is to ________. A) provide a location for all currency traders to assemble and trade B) manage currency risk especially risk associated with a transaction C) hedge transactions involving foreign currency that occurred in the past D) prevent default in the transaction […]
Initek Co’s stock trades for $12.50. Initek has too much cash. The CEO, Bill Lumberg, wants to distribute the excess cash with an open market stock repurchase. He is contemplating buying back $5.45M worth of shares at a price of $12.50. Initek is an all equity company with 20M shares outstanding. Pete Gibb owns 2 […]
