Management of Forex Transactions
Ques 1: What do you mean by the term “foreign exchange”? How can we determine foreign exchange rate? Discuss the theories in brief.
Ques 2: Outline the differences between a ‘market’ and a ‘Financial Market’. Explain the features of a financial market.
Ques 3: Define ‘Derivatives’. What are the types of derivative instruments?
Ques 4: Differentiate Futures And Forwards. Outline the features of both of them.
Ques 5: Calculate the future price.
a) The spot price of WALMART is USD 300. The bank rate is 10%. What will be the price of 1 month future
b) What would be the price if company pays a dividend of 5%.
Ques 6: What do you mean by ‘International Financial Market’? Explain in role in promoting international trade and development.
Ques 7: What do you mean by Balance of Payments? Explain its components and their significance for an economy.
Ques 8: THE FOLLOWING RATES ARE GIVEN
• SPOT(RS/EURO)—57.90 58.10
• I MTH FWD 57.50 57.80
• FIND WHETEHER EURO IS PREMIUM/DISC
• CALCULATE ANNUALISED PREMIUM/DISC
• INTERPRETATION TO THIS FIGURE?
• AVG(MID RATE)FOR 3M,6M,12M FWD CONTRACTS ASSUMING
SPREADS RS 0.50,0.80,1.00
1. What do you mean by the term ‘Arbitrage’? Discuss its significance.
Following are the rates of $/ Euro applicable in one country
• BANK A $/EURO 1.3160 1.3260
• BANK B 1.3280 1.3380
While the rates in banks of US and Germany are the following:
• US BANK ($/EURO) 1.3160 1.3260
• GERMANY(EURO/$) 0.7475 0.7525
a) Is their any arbitrage opportunity within the country?
b) Does arbitrage opportunity exist between US and GERMANY?
1. Find the forward rate of foreign currency Y if the spot rate is $4.50, the domestic interest rate is 6 percent, the foreign interest rate is 7 percent, and the forward contract is for nine months.
2. Margin in a futures transaction differs from margin in a stock transaction
3. Most futures contracts are closed by
4. Which of the following is not a forward contract?
5. One of the advantages of forward markets is
6. Suppose you sell a three-month forward contract at $35. One month later, new forward contracts are selling for $30. The risk-free rate is 10 percent. What is the value of your contract?
7. Futures prices differ from spot prices by which one of the following factors?
8. An option which gives the holder the right to sell a stock at a specified price at some time in the future is called a(n)
9. There are call options on the common stock of XYZ Corporation. Which of the following best describes the factors affecting the value of these call
10. Which of the following statements is correct?
11. An investor who writes call options against stock held in his or her portfolio is said to be selling ___________ options.
12. A commercial bank estimates that its net income suffers whenever interest rates increase. The bank is looking to use derivatives to reduce its interest rate risk. Which of the following strategies best protects the bank against rising interest rates?
13. Company A can issue floating rate debt at LIBOR + 1 percent and can issue fixed rate debt at 9 percent. Company B can issue floating rate debt at LIBOR + 1.4 percent and can issue fixed rate debt at 9.4 percent. Suppose A issues floating rate debt and B issues fixed rate debt. They engage in the following swap: A will make a fixed 7.95 percent payment to B, and B will make a floating rate payment equal to LIBOR to A. What are the resulting net
payments of A and B?
14. Which of the following are not ways in which risk management can increase the value of a company?
15. Which of the following statements is most correct?
16. Multinational financial management requires that
17. If the inflation rate in the United States is greater than the inflation rate in Sweden, other things held constant, the Swedish currency will
18. If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy?
marked to market daily.
19. If the spot rate of the French franc is 5.51 francs per dollar and the 180-day forward rate is 5.97 francs per dollar, then the forward rate for the French franc is selling at a ________________ to the spot rate.
20. Hockey skates sell in Canada for 105 Canadian dollars. Currently, 1 Canadian dollar equals 0.71 U.S. dollars. If purchasing power parity (PPP) holds, what is the price of hockey skates in the United States?
21. The relationship between the exchange rate and the prices of tradable goods
22. If wheat costs $4 per bushel in the United States and 2 pounds per bushel in Great Britain, then in the presence of purchasing-power parity the exchange rate should be:
23. A primary reason that explains the appreciation in the value of the U.S. dollar in the 1980s is:
24. When the price of foreign currency (i.e., the exchange rate) is above the equilibrium level:
25. The international exchange value of the U.S. dollar is determined by:
26. Which of the following is an example of foreign exchange?
27. Which of the following are usual suppliers of Euros?
28. The vast majority of large-scale foreign exchange transactions in the US are:
29. If a company contracts today for some future date of actual currency exchange, they will be making use of a:
30. Which of the following might affect the cost of a trip to Japan by a resident of
31. A company that functions to unite sellers and buyers of foreign currency-denominated bank deposits is called:
32. _____________ contracts are more widely accessible to firms and individuals than ____________ contracts.
33. If the euro dollar deposit rate is 3% per year and the euro-euro rate is 6% per year, by how much will the euro be expected to devalue in the coming
34. According to which theory will differences in nominal interest rates be eliminated in the exchange rate?
35. If inflation goes up in the US relative to other countries, it is expected that the price of the US dollar will:
36. Which of the following is an exchange risk management technique through which the firm contracts with a third party to pass exchange risk onto that party, via instruments such as forward contracts, futures, and options?
37. What is the base interest rate paid on deposits among banks in the eurocurrency market called?
38. Which of the following contract terms is not set by the futures exchange?
39. Which one is the best derivative instrument according to you?
40. What does premium mean?
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