We can work on A pure float exchange rate regime

Question 1
If a country chooses to have a pure float exchange rate regime, which goal(s) is a country most able to achieve under the concept of the ʺImpossible Trinityʺ?

A) Monetary independence and full financial integration.
B) Monetary independence and inflation target.
C) Exchange-rate stability and an independent monetary policy.
D) A country cannot attain any of the exchange rate goals with a pure float exchange rate regime.

Question 2
Suppose that the pound is pegged to gold at £20 per ounce and the dollar is pegged to gold at $35 per ounce. This implies an exchange rate of $1.75 per pound. If the current market exchange rate is $1.60 per pound, how would you take advantage of this situation? Hint: assume that you have $350 available for investment.

A) Start with $350. Buy 10 ounces of gold with dollars at $35 per ounce. Convert the gold to £200 at £20 per ounce. Exchange the £200 for dollars at the current rate of $1.80 per pound to get $360.
B) Start with $350. Exchange the dollars for pounds at the current rate of $1.60 per pound. Buy gold with pounds at £20 per ounce. Convert the gold to dollars at $35 per ounce.
C) A and B both work
D) None of the above.

Question 3
Which of the follow options strategies (all options share the same strike price) are consistent in their belief about the future contract of the underlying asset price?

A) Selling calls and selling puts
B) Buying calls and buying puts
C) Buying calls and selling puts
D) None of the above

Question 4
Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based multinational firm’s reported earnings (from the consolidated income statement) to . If a firm desired to protect against this possi¬bility, it could stabilize its reported earnings by euros forward in the foreign exchange market.
A) be reduced; purchasing
B) be reduced; selling
C) increase; selling
D) increase; purchasing
E) None of the above

Part B (90 marks): Five (5) Short Answer questions. Marks are clearly stated in each question.
Answer all Five (5) questions in the answer booklet provided.

Question 1 (20 marks)
Assume the spot rate of the ₤ is $1.7000. The British interest rate is 10%, and the U.S. interest rate is 11% over the 360 day (1 year) period. The British inflation rate is 4% and the U.S. inflation rate is 3.5% over the 360-day (1 year) period. The 180-day forward price is $1.7200/₤. The 180-day European call option on the $ with the exercise price of ₤0.5800 is selling at 3% premium, while the 180-day European put option on the $ with the exercise price of ₤0.5900 is selling at 2% premium. Your U.S. based firm has an account payable of ₤200,000 due in 180 days.
A) What should be the 180-day forward rate based on Interest Rate Parity (IRP)?
What is the dollar cost of using a forward hedge? Make sure you state your position in the forward contract. (4 marks)
B) Assume the firm has no excess cash. Use the above to calculate the dollar cost of using a money market hedge to hedge ₤200,000 of payable due in 180 days?
(6 marks)
C) Calculate the cost of an option hedge at the time the payment is due assuming you exercise the option when the payment is due. (6 marks)
D) Based on the answers in (a), (b), and (c), which hedging methods should your firm choose? (4 marks)

Question 2 (15 marks)
Alphabetical Company (ALP) prefers variable- to fixed-rate debt. On the other hand, Microsotical Company (MIC) prefers fixed- to variable-rate debt. Assume the following information for both Companies:
Fixed-Rate Bond Variable-Rate Bond
ALP 12% LIBOR + 2%
MIC 13.5% LIBOR + 2.5%
As a rising star analyst in the ALP, you approach the Chief Financial Officer (CFO) and propose an interest swap deal that your firm can enter into with MIC. However, your CFO argues that an interest rate swap will probably not be advantageous to the company because it can issue both fixed and variable debt at more attractive rates than MIC.
A) Explain to your CFO why he is wrong. Make sure that your explanation includes the discussion about the absolute and comparative advantages and the potential savings from the interest rate swap deal? (5 marks)
B) Now show your CFO the interest rate swap deal by completing the diagram below (Write your answers in the answer booklet provided) with the following assumptions: (10 marks)
 ALP will have 50% of the potential savings, and MIC will receive the rest. There is no swap bank.
 LIBOR (floating rate) must be used in the transaction between ALP and MIC companies i.e. either transaction (iii) or (iv).

Question 3 (15 marks)
Suppose you are a China-based investor who just sold Australian Commonwealth Bank (CBA) shares that you had bought six months ago. You had invested Yuan446,000 to buy CBA shares for $60 per share. The exchange rate was Yuan4.50/$. You sold the stock for $65 per share and converted the dollar proceeds into Yuan at the exchange rate of 5.50Yuan/$.

A) Determine the percentage return from this investment in Australian dollars. Show all workings. (4 marks)

B) Compute the rate of return on your investment in Yuan terms. Show all workings.

    (6 marks)

C) What are channels that contribute to your investment risk? (Hint: Think about the variance of your investment) (5 marks)

Sample Solution

Recidivism many of the young male populace is still a subject for society over the past decade. primarily based on the national Institute of Justice, “Recidivism is measured by using crook acts that resulted in re-arrest, reconviction or return to jail without or with a new sentence all through a 3-year length following the prisoner’s launch” (“NRRC information & developments”). even though crime rates have endured to lower, recidivism still poses a trouble in society nowadays. The sociological attitude strives to apprehend human behavior via placing it within its broader social context (Henslin 2). The purpose of this paper is to talk about the societal trouble of recidivism a number of the young male population at the same time as focusing at the sociological perspective of why individuals are at risk of re-offending. while discussing deviant behavior it is able to be easy for one to absolutely say recidivism is a problem because once humans begin committing crimes it’s far too tough to forestall. however, taking recidivism within the context of person’s surroundings possible apprehend on an authentic degree that we examine our primary perspectives of the world from the institution in which we grow up (Henslin four). these views dictate our ideological principles, and in that admire it turns into harder to interrupt cycles of crime through generations. As a criminal justice major, it’s miles critical to apprehend the social implications that prevent people to be successful upon re-access. handiest then is it feasible to improve rules regarding the jail gadget and social offerings for integrating offenders returned into the community. As a society, it’s miles imperative that one understands the recidivism fee in phrases of social structures alternatively that completely on private duty. In doing so, society can vote on rules and assist groups that see repetitive patterns within the recidivism fee. At the prevailing time, the recidivism price continues to be the very best among inmates who are younger that 21. based on a have a look at performed by using the U.S. Sentencing fee, it turned into determined that 67.6% of inmates who had been launched even as more youthful than 21 have been re-arrested (“NRRC data & tendencies”). In contrast, 49.3% of all federal prisoners released have been re-arrested (“NRRC facts & traits”). The U.S. Census Bureau reviews that as of 2010, the whole wide variety of teens a while 18-29 in prisons or jails has started to say no (“NRRC records & developments”). further, male kids in jail are 16 instances much more likely than girls to be in jail or jail (“NRRC records & tendencies”). despite the fact that the charge of incarceration is decreasing for younger adult adult males, the recidivism rate remains exceedingly the equal; recidivism is mentioned as low as 50 percent to as high as 70 percentage depending on the kingdom. Henslin discusses that recidivism charges show the ineffective method of our jail structures and therefore concludes that prisons fail to educate humans that crime doesn’t pay (219). The fee this is paid due to younger adult delinquency is huge; arguably, the maximum crucial is the danger of rearing a new technology with advantageous attitudes in the direction of delinquency and social deviation>

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