Exam 7: International Arbitrage and Interest Rate Parity

Assume the following information: U.S.investors have $1,000,000 to invest 1-year deposit rate offered on U.S.dollars = 12% 1-year deposit rate offered on Singapore dollars = 10% 1-year forward rate of Singapore dollars = $.412 Spot rate of Singapore dollar = $.400 Given this information:

(Multiple Choice)

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(75)

Question 41

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 _______%.

(Multiple Choice)

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Question 42

Triangular arbitrage tends to force a relationship between the interest rates of two countries and their forward exchange rate premium or discount.

(True/False)

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Question 43

Assume that British interest rates are higher than U.S.rates,and that the spot rate equals the forward rate. Covered interest arbitrage puts _ pressure on the pound's spot rate,and _ pressure on the pound's forward rate.

(Multiple Choice)

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Question 44

Locational arbitrage involves investing in a foreign country and covering against exchange rate risk by engaging in forward contracts.

(True/False)

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Question 45

Assume the following information: U.S.investors have $1,000,000 to invest 1-year deposit rate offered by U.S.banks = 12% 1-year deposit rate offered on Swiss francs = 10% 1-year forward rate of Swiss francs = $.62 Spot rate of Swiss franc = $.60 Given this information:

(Multiple Choice)

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Question 46

Assume the following information: Current spot rate of New Zealand dollar = $.41 Forecasted spot rate of New Zealand dollar 1 year from now = $.43 One-year forward rate of the New Zealand dollar = $.42 Annual interest rate on New Zealand dollars = 8% Annual interest rate on U.S.dollars = 9% Given the information in this question,the return from covered interest arbitrage by U.S.investors with $500,000 to invest is _______%.

(Multiple Choice)

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(76)

Question 47

You just received a gift from a friend consisting of 1,000 Thai baht,which you would like to exchange for Australian dollars (A$).You observe that exchange rate quotes for the baht are currently $.023,while quotes for the Australian dollar are $.576.How many Australian dollars should you expect to receive for your baht

(Multiple Choice)

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Question 48

If the interest rate is lower in the U.S.than in the United Kingdom,and if the forward rate of the British pound is the same as its spot rate:

(Multiple Choice)

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Question 49

Which of the following is an example of triangular arbitrage initiation

(Multiple Choice)

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Question 50

Assume the following bid and ask rates of the pound for two banks as shown below: As locational arbitrage occurs:

(Multiple Choice)

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Question 51

When using _______,funds are typically tied up for a significant period of time.

(Multiple Choice)

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Question 52

Assume locational arbitrage is possible and involves two different banks.The realignment that would occur due to market forces would increase one bank's ask rate and would decrease the other bank's bid rate.

(True/False)

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Question 53

Assume the bid rate of a Singapore dollar is $.40 while the ask rate is $.41 at Bank X. Assume the bid rate of a Singapore dollar is $.42 while the ask rate is $.425 at Bank Z. Given this information,what would be your gain if you use $1,000,000 and execute locational arbitrage That is,how much will you end up with over and above the $1,000,000 you started with

(Multiple Choice)

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Question 54

Due to _______,market forces should realign the cross exchange rate between two foreign currencies based on the spot exchange rates of the two currencies against the U.S.dollar.

(Multiple Choice)

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Question 55

Assume the following information for a bank quoting on spot exchange rates: Exchange rate of Singapore dollar in U.S.$ = $.60 Exchange rate of pound in U.S.$ = $1.50 Exchange rate of pound in Singapore dollars = S$2.6 Based on the information given,as you and others perform triangular arbitrage,what should logically happen to the spot exchange rates

(Multiple Choice)

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Question 56

Assume that a U.S.firm can invest funds for one year in the U.S.at 12% or invest funds in Mexico at 14%. The spot rate of the peso is $.10 while the one-year forward rate of the peso is $.10. If U.S.firms attempt to use covered interest arbitrage,what forces should occur

(Multiple Choice)

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Question 57

Assume the British pound is worth $1.60,and the Canadian dollar is worth $.80. What is the value of the Canadian dollar in pounds

(Multiple Choice)

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Question 58

Showing 41 - 58 of 58

Assume the following information: U.S.investors have $1,000,000 to invest 1-year deposit rate offered on U.S.dollars = 12% 1-year deposit rate offered on Singapore dollars = 10% 1-year forward rate of Singapore dollars = $.412 Spot rate of Singapore dollar = $.400 Given this information:

Triangular arbitrage tends to force a relationship between the interest rates of two countries and their forward exchange rate premium or discount.

Assume that British interest rates are higher than U.S.rates,and that the spot rate equals the forward rate. Covered interest arbitrage puts _ pressure on the pound's spot rate,and _ pressure on the pound's forward rate.

Locational arbitrage involves investing in a foreign country and covering against exchange rate risk by engaging in forward contracts.

Assume the following information: U.S.investors have $1,000,000 to invest 1-year deposit rate offered by U.S.banks = 12% 1-year deposit rate offered on Swiss francs = 10% 1-year forward rate of Swiss francs = $.62 Spot rate of Swiss franc = $.60 Given this information:

If the interest rate is lower in the U.S.than in the United Kingdom,and if the forward rate of the British pound is the same as its spot rate:

Which of the following is an example of triangular arbitrage initiation

Assume the following bid and ask rates of the pound for two banks as shown below: As locational arbitrage occurs:

When using _______,funds are typically tied up for a significant period of time.

Assume locational arbitrage is possible and involves two different banks.The realignment that would occur due to market forces would increase one bank's ask rate and would decrease the other bank's bid rate.

Due to _______,market forces should realign the cross exchange rate between two foreign currencies based on the spot exchange rates of the two currencies against the U.S.dollar.

Assume that a U.S.firm can invest funds for one year in the U.S.at 12% or invest funds in Mexico at 14%. The spot rate of the peso is $.10 while the one-year forward rate of the peso is $.10. If U.S.firms attempt to use covered interest arbitrage,what forces should occur

Assume the British pound is worth $1.60,and the Canadian dollar is worth $.80. What is the value of the Canadian dollar in pounds

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

Relationships among Inflation,Interest Rates,and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

Multinational Restructuring

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Exam 7: International Arbitrage and Interest Rate Parity

Assume the following information: U.S.investors have $1,000,000 to invest 1-year deposit rate offered on U.S.dollars = 12% 1-year deposit rate offered on Singapore dollars = 10% 1-year forward rate of Singapore dollars = $.412 Spot rate of Singapore dollar = $.400 Given this information:

Triangular arbitrage tends to force a relationship between the interest rates of two countries and their forward exchange rate premium or discount.

Assume that British interest rates are higher than U.S.rates,and that the spot rate equals the forward rate. Covered interest arbitrage puts _______ pressure on the pound's spot rate,and _______ pressure on the pound's forward rate.

Locational arbitrage involves investing in a foreign country and covering against exchange rate risk by engaging in forward contracts.

Assume the following information: U.S.investors have $1,000,000 to invest 1-year deposit rate offered by U.S.banks = 12% 1-year deposit rate offered on Swiss francs = 10% 1-year forward rate of Swiss francs = $.62 Spot rate of Swiss franc = $.60 Given this information:

If the interest rate is lower in the U.S.than in the United Kingdom,and if the forward rate of the British pound is the same as its spot rate:

Which of the following is an example of triangular arbitrage initiation

Assume the following bid and ask rates of the pound for two banks as shown below: As locational arbitrage occurs:

When using _______,funds are typically tied up for a significant period of time.

Assume locational arbitrage is possible and involves two different banks.The realignment that would occur due to market forces would increase one bank's ask rate and would decrease the other bank's bid rate.

Due to _______,market forces should realign the cross exchange rate between two foreign currencies based on the spot exchange rates of the two currencies against the U.S.dollar.

Assume that a U.S.firm can invest funds for one year in the U.S.at 12% or invest funds in Mexico at 14%. The spot rate of the peso is $.10 while the one-year forward rate of the peso is $.10. If U.S.firms attempt to use covered interest arbitrage,what forces should occur

Assume the British pound is worth $1.60,and the Canadian dollar is worth $.80. What is the value of the Canadian dollar in pounds

Multinational Financial Management: An Overview

International Flow of Funds

International Financial Markets

Exchange Rate Determination

Currency Derivatives

Government Influence on Exchange Rates

Relationships among Inflation,Interest Rates,and Exchange Rates

Forecasting Exchange Rates

Measuring Exposure to Exchange Rate Fluctuations

Managing Transaction Exposure

Managing Economic Exposure and Translation Exposure

Direct Foreign Investment

Multinational Capital Budgeting

Multinational Restructuring

Country Risk Analysis

Multinational Cost of Capital and Capital Structure

Long-Term Financing

Financing International Trade

Short-Term Financing

International Cash Management

Filters

Assume that British interest rates are higher than U.S.rates,and that the spot rate equals the forward rate. Covered interest arbitrage puts _ pressure on the pound's spot rate,and _ pressure on the pound's forward rate.