a). Describe briefly the nature of a swap and its primary component. b). Under what circumstances would a multinational company elect to enter into a currency swap agreement? c) How does a dividend payment impact the option price?

Q: Which of the following provides the link between interest rate parity and unbiased forward rates? A.…

A: Uncovered Interest rate Parity As per uncovered interest rate parity theory the difference in…

Q: Explain carefully how swaps allow firms and banks to separate different types of fixed income risk.…

A: An interest rate swap is a contract between two parties in which one stream of interest payments is…

Q: A. are only used by foreign currency traders to speculate on currency fluctuations. B. are generally…

A: Financial derivative: Derivative is a contract between two parties whose value is based on the…

Q: discuss the motives a company may have for engaging in currency and intrest rate swaps

A: A swap is a two-party derivative transaction that includes the exchange of pre-agreed cash flows. It…

Q: In a fixed-for-fixed currency swap where country A’s interest rate is higher than country B’s…

A: A fixed for fixed currency swap is one in which the counterparties enter in to agreement to pay…

Q: What is a mismatch risk (for an IRS)? Select one: The risk that a country will impose exchange rate…

A: Mismatch Risk Mismatch risk which was associated with many factors while in the investment which are…

Q: Due to ____, market forces should realign the relationship between the interest rate differential of…

A: Arbitrage means buying and selling the asset in order to profit from its price between markets.

Q: How does a company determine the fair value of a foreign currency forward contract? How does it…

A: The fair value of a foreign currency forward contract is determined by reference to changes in the…

Q: interest rate and currency swap dealer

A: Risk confronting refers to some uncertainty or potential loss chances that will go to happen in…

Q: Who are the major actors in the exchange rate market and what are their roles?

A: The exchange rate market is also known as the Forex, it is a market for the changing home currency…

Q: How do companies report foreign currency derivatives, such as forward contracts and options, on the…

A: Currency derivatives refers to the financial contracts involving two parties, buyer and seller which…

Q: Broadly defined, the foreign exchange (FX) market encompasses: O a. Foreign trade financing. Ob.…

A: The foreign exchange market is the place where various countries' currencies are purchased and sold…

Q: Recommend how MR D.I.Y. Group (M) Berhad could manage the interest rate risk and foreign exchange…

A: Introduction  Derivatives are financial instrument that have values derived from other assets like…

Q: Which one of the following statements is correct for an interest rate swap? A. There is an exchange…

A: interest rate swap is the exchange of  future interest payment with other type od future interest…

Q: An increase in which of these factors increases the premium of a currency call option? Check all…

A: Call option is a derivative contract that gives the buyer the right but not the obligation to buy…

Q: Explain the nature of potential risks in international transactions and critically discuss how…

A: Hi, since you have posted multiple questions, I am answering the first one as per the guidelines.…

Q: Compare and contrast how corporations use interest swaps and forward contracts. Focus on the…

A: Currency and interest rate swaps allow companies to more efficiently navigate the global markets by…

Q: Describe briefly the nature of a swap and its primary component.

A: Hi There, Thanks for posting the questions. As per Q&A guidelines, when multiple questions…

Q: w can the company use currency futures contracts to hedge against exchange rate risk?

A: A future contract is an agreement to buy or sell the underlying asset on a specified future date and…

Q: Which of the following statements regarding a cross-currency swap is NOT correct? a. The re-exchange…

A: In cross-currency swap the re-exchange at the conclusion will usually takes place at the initial…

Q: Which of the following statements is true? a. In an interest rate swap, the principals are exchanged…

A: A swap is a financial derivative arrangement in which two parties swap cash flows or liabilities…

Q: A swap contract Select one: A. relates to the trading of an asset owned by one company for another…

A: A swap contract is an agreement between two parties to exchange their liabilities with each other…

Q: What is the difference (description) between Money Market, Bond Market, Equity Market, Foreign…

A: Money market, bond market, equity market, foreign exchange market and derivatives market are…

Q: Assume a company needs to hedge payables. Which of the following conditions has to be met so a…

A: Call option gives holder a right to buy a stock, but it is not an obligation to buy the stock.…

Q: why a firm should consider hedging net payables and recivables with currency options rather than…

A: Hedging is the process by which risk can be reduced. Options are the derivative instruments that…

Q: Which of the following reflects a hedge of net payables on British pounds by a U.S. firm? A. sell a…

A: The US firm has net payables in British pounds or GBP.A hedge would mean taking an opposite position…

Q: In which of the following relationships between the expected future spot rate (E(e)) of a foreign…

A: A speculator will sell foreign currency at present when it is expected that price will get lower in…

Q: Explain the steps necessary to take advantage of an arbitrage opportunity, which may exist between…

A: When a future yen payment is due,you need to lock in a lower price for the yen.  Currency arbitrage…

Q: A firm that has a sum of money denominated in a foreign currency that plans to later convert it to…

A: A hedge is an investment that consists of taking an offsetting or opposing position in a linked…

Q: Merck is an example of a company who decided to mitigate the adverse impact of market fluctuations…

A: Correct answer is C. both interest rate swaps and currency options can be used to hedge against…

Q: Explain the following terms. a. ADR and GDR Depository Receipts b. Bid Rate and Ask rate c. Option…

A: Since you have asked multiple questions, we will solve the first question for you as per policy.…

Instruments of Foreign Exchange Market

Foreign exchange is a worldwide market in which one nation’s currency is converted into another nation’s currency. In further terms, exchanging of nations currency with foreign currencies. Foreign exchange happens at a specified rate which is termed the foreign exchange rate. The exchange rates are not constant continuously changing as they are derived by market forces of supply and demand. Widely used foreign currencies are the United States- dollar, Euro, Japanese Yen, British pound, and Australian dollar. US- dollar is the most denominated foreign currency. The Euro to US dollar is a widely used currency pair in the forex market as these two currencies represent the world’s enormous economy. Forex trade is simple as exchanging currencies at the bank. The main players of forex markets are the central banks, financial institutions, intermediaries, investments banks, and other banks. Central Bank is the supreme player who decides the currency value of their own nation on the forex market. Mostly foreign exchange-traded at FX market (forex market) when tourists’ visits a foreign country, import, and export happens between two countries.