The following are the net currency positions of a U.S. FI (stated in U.S. dollars). Note: Net currency positions are foreign exchange bought minus foreign exchange sold restated in U.S. dollar terms. \[\begin{array} { | l | r | } \hline { \text { Currency } } & \text { Net Position } \\ \hline \text { Canadian Dollar } & \text { +US \$1,200 } \\ \hline \text { Euro } & \text {-US \$245,900 } \\ \hline \text { Japanese Yen } & \text { +US \$505,000 } \\ \hline \text { Swiss Franc } & \text {-US \$36,700 } \\ \hline \text { British Pound } & \text { +US \$447,900 } \\ \hline \end{array}\] -What is the FI's total FX investment?

A) US $671,500. B) US $1,236,700. C) -US $671,500. D) -US $1,236,700. E) 0 A) US $671,500. B) US $1,236,700. C) -US $671,500. D) -US $1,236,700. E) 0

The following are the net currency positions of a U.S. FI (stated in U.S. dollars). \[\begin{array} { | l | l | r | r | r | } \hline \text { Currency } & \text { Assets } & \text { Liabilities } & \text { FX Bought } & \text { FX Sold } \\ \hline \text { British pound } & 24,600 & 70,000 & 170,400 & 321,000 \\ \hline \text { Yen } & 31,000 & 20,400 & 250,000 & 220,000 \\ \hline \text { Swiss franc } & 10,200 & 9,800 & 8,000 & 10,800 \\ \hline \end{array}\] -What is the FI's net exposure in British pounds?

A) -45,400. B) -150,600. C) -196,000. D) +105,200. E) +196,000. A) -45,400. B) -150,600. C) -196,000. D) +105,200. E) +196,000.

Exam 13: Foreign Exchange Risk

An FI has purchased (borrowed) a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent. It has invested these proceeds in one-year Euro (€) bonds at an annual rate of 6.5 percent after converting them at the current spot rate of €1.75/$. Both interest and principal are paid at the end of the year. -What is the spread earned by the bank if the end-of-year exchange rate is €1.77/$?

(Multiple Choice)

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Question 41

An FI has purchased (borrowed) a one-year $10 million Eurodollar deposit at an annual interest rate of 6 percent. It has invested these proceeds in one-year Euro (€) bonds at an annual rate of 6.5 percent after converting them at the current spot rate of €1.75/$. Both interest and principal are paid at the end of the year. -What is the spread earned if the bank can sell one-year forward Euros at €1.755/$?

(Multiple Choice)

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Question 42

As the U.S. dollar appreciates against the Japanese yen, Japanese goods sold in the U.S. become less expensive to the U.S. consumer.

(True/False)

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Question 43

The following are the net currency positions of a U.S. FI (stated in U.S. dollars). Note: Net currency positions are foreign exchange bought minus foreign exchange sold restated in U.S. dollar terms. Currency Net Position Canadian Dollar +US \1 ,200 Euro -US \2 45,900 Japanese Yen +US \5 05,000 Swiss Franc -US \3 6,700 British Pound +US \4 47,900 -What is the FI's total FX investment?

(Multiple Choice)

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Question 44

The one-year CD rates for financial institutions with AA ratings are 5 percent in the U.S. and 8 percent in France. An AA-rated U.S. financial institution can borrow by issuing CDs or lend by purchasing CDs at these rates in either market. The current spot rate is $0.20/Euro. -If the bank receives a quote of $0.1975/€ for one-year forward rates for the Euro (to buy and to sell), what is the arbitrage profit for the bank if it uses $1,000,000 as the notional amount?

(Multiple Choice)

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Question 45

Yen Bank wishes to invest in Yen loans at a rate of 10 percent. The bank will fund the loans in the domestic CD market at a rate of 6.3 percent. This on-balance-sheet FX risk will be hedged in the spot market at a forward rate of $0.62/×. The spot rate on yen is $0.60/×. -What must be the spot exchange rate to eliminate the preference for the yen loans if the forward rate remains $0.62/×?

(Multiple Choice)

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Question 46

A U.S. FI is raising all of its $20 million liabilities in dollars (one-year CDs) but investing 50 percent in U.S. dollar assets (one-year maturity loans) and 50 percent in U.K. pound sterling assets (one-year maturity loans). Suppose the promised one-year U.S. CD rate is 9 percent, to be paid in dollars at the end of the year, and that one-year, credit risk-free loans in the United States are yielding only 10 percent. Credit risk-free one-year loans are yielding 16 percent in the United Kingdom. -If the spot foreign exchange rate remains constant at $1.60 to ≤1 throughout the year, the return from the U.K. investment will be

(Multiple Choice)

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Question 47

To a U.S. trader of foreign currencies, a direct quote indicates U.S. dollars received for each one unit of the foreign currency.

(True/False)

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Question 48

Average daily turnover in the FX market has recently been over $4 trillion.

(True/False)

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Question 49

Which of the following is an example of interest rate parity?

(Multiple Choice)

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Question 50

Assume that instead of investing in Euro bonds at a fixed rate of 6.5 percent, the FI invests them in variable rates of LIBOR + 1.5 percent, reset every six months. The current LIBOR rate is 5 percent. LIBOR at the end of six months is 5.5 percent. Assume both interest and principal will be reinvested in six months. Assume the spot exchange rate is €1.75/$. What should be the one-year forward rate in order for the bank to earn a spread of 1 percent?

(Multiple Choice)

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Question 51

A negative net exposure position in FX implies that the FI is

(Multiple Choice)

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Question 52

The decline in European FX volatility during the last decade has been offset in part by

(Multiple Choice)

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Question 53

The reason an FI receives a fee when purchasing foreign currencies to allow customers to complete international transactions is because the FI assumes some FX risk.

(True/False)

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Question 54

If foreign currency exchange rates are highly positively correlated, how can a FI reduce its exchange rate risk exposure?

(Multiple Choice)

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Question 55

A U.S. FI is raising all of its $20 million liabilities in dollars (one-year CDs) but investing 50 percent in U.S. dollar assets (one-year maturity loans) and 50 percent in U.K. pound sterling assets (one-year maturity loans). Suppose the promised one-year U.S. CD rate is 9 percent, to be paid in dollars at the end of the year, and that one-year, credit risk-free loans in the United States are yielding only 10 percent. Credit risk-free one-year loans are yielding 16 percent in the United Kingdom. -If the exchange rate had fallen from $1.60/≤1 at the beginning of the year to $1.50/≤1 at the end of the year when the FI needed to repatriate the principal and interest on the loan. What would the dollar loan revenues at the end of the year be as a return on the original dollar investment?

(Multiple Choice)

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Question 56

The total FX risk for a domestic bank that is making a one-year loan in a foreign currency is that the interest income expected on the loan is exposed to a depreciation of the foreign currency.

(True/False)

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Question 57

The FI is acting as a hedger when it

(Multiple Choice)

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Question 58

The following are the net currency positions of a U.S. FI (stated in U.S. dollars). Currency Assets Liabilities FX Bought FX Sold British pound 24,600 70,000 170,400 321,000 Yen 31,000 20,400 250,000 220,000 Swiss franc 10,200 9,800 8,000 10,800 -What is the FI's net exposure in British pounds?

(Multiple Choice)

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Question 59

The decrease in European FX volatility during the last decade has occurred because of

(Multiple Choice)

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Question 60

Showing 41 - 60 of 100

As the U.S. dollar appreciates against the Japanese yen, Japanese goods sold in the U.S. become less expensive to the U.S. consumer.

To a U.S. trader of foreign currencies, a direct quote indicates U.S. dollars received for each one unit of the foreign currency.

Average daily turnover in the FX market has recently been over $4 trillion.

Which of the following is an example of interest rate parity?

A negative net exposure position in FX implies that the FI is

The decline in European FX volatility during the last decade has been offset in part by

The reason an FI receives a fee when purchasing foreign currencies to allow customers to complete international transactions is because the FI assumes some FX risk.

If foreign currency exchange rates are highly positively correlated, how can a FI reduce its exchange rate risk exposure?

The total FX risk for a domestic bank that is making a one-year loan in a foreign currency is that the interest income expected on the loan is exposed to a depreciation of the foreign currency.

The FI is acting as a hedger when it

The following are the net currency positions of a U.S. FI (stated in U.S. dollars). Currency Assets Liabilities FX Bought FX Sold British pound 24,600 70,000 170,400 321,000 Yen 31,000 20,400 250,000 220,000 Swiss franc 10,200 9,800 8,000 10,800 -What is the FI's net exposure in British pounds?

The decrease in European FX volatility during the last decade has occurred because of

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