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FIN 350, International Finance

Problem Set 3, Fall 2014

Due Nov 23rd 2014

Name: _______________________________

              

1.      Assume that Bank X cites the New Zealand dollar as NZD-USD.3301/51, suitableness Bank Y cites the New Zealand dollar as NZD-USD .3201/51.

a.        Given this knowledge, is it potential for investors to convoy arbitrage?

b.       If an investor has a borrowing volume of $10,000,000, how considerable benefit-service can she fabricate from the cite contrariety?

c.        What earn be the application of her proceeding on the negotiate cites of the New Zealand dollar at the two banks?

 

2.      Assume the subjoined knowledge: U.S. investors possess $10,000,000 to invest

 

Lending and borrowing reprove in U.S. dollars

=

6% and 8% respectively

Lending and Borrowing reprove in Singapore dollars

=

4% and 6% respectively

Forward reprove of Singapore dollars

=

$.412-$0.414

Spot reprove of Singapore dollar

=

$.400 - $.402

 

(a)        Explain any contrariety an investor can fault in the office?

(b)        How considerable benefit-service (if any) can be made by an investor who has a borrowing volume of the equiponderant of $10,000,000?

 

 

3.      Assume the subjoined knowledge for a bank quoting on fault remodel reproves:

 

Exchange reprove of Singapore dollar in USD

=

$.60 - $0.61

Exchange reprove of beat in USD

=

$1.51 - $1.515

Exchange reprove of beat in Singapore dollars

=

S$2.605 – S$2.61

 

(a)        Explain the arrangement of triangular arbitrage.

(b)        How considerable benefit-service can be made by a speculator after a while a volume of $10,000,000 from this office?  (c)            As arbitrage takes settle, what earn be the application on each publicity vis-à-vis the others?

 

 

 

4.      Assume the subjoined knowledge:

 

U.S. safeguard reprove for 1 year

=

4%

U.S. borrowing reprove for 1 year

=

6%

Swiss safeguard reprove for 1 year

=

3%

Swiss borrowing reprove for 1 year

=

5%

Swiss confident reprove for 1 year

=

$.4000-$.4020

Swiss franc fault reprove

=

$.3905-$0.3922

 

Also claim that a U.S. exporter denominates its Swiss exports in Swiss francs and expects to take SF 600,000 in 1 year.  Using the knowledge over, should the exporter hedge her exports using a confident hedge or a coin negotiate hedge? Explain.

 

 

 

                  5.         You are the treasurer of Arizona Corporation and must flow how to hedge (if at all) forthcoming receivables of 350,000 Australian dollars (A$) 180 days from now. Put discretions are adapted for a prize of $.02 per ace and an drill expense of $.50 per Australian dollar. Call discretions are adapted for a prize of $0.03 and an drill expense of $0.50. The forecasted fault reprove of the Australian dollar in 180 days is:

 

Future Fault Rate

Probability

$.46

20%

$.48

30%

$.52

50%

 

The 90-day confident reprove of the Australian dollar is $.50.  

(a)                What discretion temporization can Arizona use to hedge its receivables?

(b)               What is the presumption that the discretion earn be drilld (ostentatious Arizona purchased it)?

(c)                What earn be the net receivables if the discretion is drilld?

(d)               Is the discretion temporization emend than a confident abridge?

(e)                Would leaving the receivables unhedged possess been emend than the hedging strategies?