Select all statements below that correctly describe currency spot markets: The most heavily traded currency in spot markets is the United States dollar. The spot market includes currency futures, forwards, and options. The spot market is for immediate exchange of currencies, but the value/settlement date may take up to two days. The spot market has the same trading hours as the London Stock Exchange. The spot market is centralized in New York city. The retail spot market includes large corporations, local banks, and individuals.

Select all statements below that correctly describe currency spot markets: The most heavily traded currency in spot markets is the United States dollar. The spot market includes currency futures, forwards, and options. The spot market is for immediate exchange of currencies, but the value/settlement date may take up to two days. The spot market has the same trading hours as the London Stock Exchange. The spot market is centralized in New York city. The retail spot market includes large corporations, local banks, and individuals.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter9: Forecasting Exchange Rates

Section: Chapter Questions

Problem 28QA

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Which of the following statements about the foreign exchange market is NOT true? The client market, also referred to as the retail market, is a segment of the FX market. FX brokers match buy and sell orders and carry a large inventory of foreign exchange. Nonbank dealers represent approximately 40% of the market. About 100-200 banks worldwide are prepared to make a market in foreign exchange.
The table below presents bid-ask quotes for Swiss Francs (SF) from several currency dealers around the world. Currency Dealer in Bid/Ask Quotes for SF Zurich $0.7460-71 Zurich: increase: London; increase; London; increase; Zurich; decrease Based on the quotes below, as all traders use locational arbitrage to maximize profits, ask quote of the dealer will and bid quote of the dealer will New York; increase; Hong Kong; decease; Hong Kong $0.7471-74 Hong Kong: decrease; New York; increase: London $0.7469-76 New York $0.7464-70
Let's say a bank offers the following exchange rates between US Dollar ($), Euro (€), British Pound (£) and Japanese Yen (¥): $/€ 1.20 i.e., €1 equals $1.20 $/£1.40 i.e., £1 equals $1.40 €/£1,16 i.e., £1 equals €1.16 ¥/$120 i.e., $1 equals 120¥ ¥/€140 i.e., €1 equals 140¥ Show how you can make a profit with triangular arbitrage by trading at the above exchange rates by following two alternative strategies. More specifically, the first strategy should only use transactions/conversions between dollar ($), Euro (€) and poundsterling (£), while the second strategy should only use transactions/conversions between dollar ($), Euro (€) and Japanese yen (¥). In both strategies, suppose you start with $1 ($) in your hands. Calculate the profit of each strategy. Which of the two strategies is more advantageous?
Suppose that a commercial bank’s current quote for transactions involving the United Kingdom pound is A$1.9120/75. (a) Define the ask and bid prices in general terms, and state the ask and bid prices for the bank. (b) Define the bid/ask spread in general terms, and calculate the bid/ask spread for the bank. (c) Explain briefly why the United Kingdom does not use the Euro as its currency
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Consider the strategies used by your government, in the country your currently reside and currentmanagement of the exchange rate.Now record, in your journal, your response to the following questions, in 700 words or less: How is the exchange rate policy in your own jurisdiction managed by government? What, in your opinion, are the strengths and weaknesses of your government’s policies? Identify one MNC that may, or may not, benefit from the operation of your nationalexchange rate policy and justify your position.
. Using published sources (for example, The Wall Street Journal, Barron’s, Federal Reserve Bulletin),look up the exchange rate for U.S. dollars with Japanese yen for each of the past 10 years (you can usean average for the year or a specific time period each year). Based on these exchange rates, computeand discuss the yearly exchange rate effect on an investment in Japanese stocks by a U.S. investor. Discuss the impact of this exchange rate effect on the risk of Japanese stocks for a U.S. investor
Statoil, the national company in Norway, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is a Norwegian company, because it operates within the global oil market, it considers the U.S. dollar ($), rather than the Norwegian krone (Nok), as its functional currency. Ari Karlsen is a currency trading strategist for Statoil. In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates: Spot exchange rate: Yen 106/$U.S. dollar interest rate: per annum 10%Japanese Yen interest rate: per annum 6% and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates. If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: What would the spot exchange rate (Yen/$) be in 90 days?
Statoil, the national company in Norway, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is a Norwegian company, because it operates within the global oil market, it considers the U.S. dollar ($), rather than the Norwegian krone (Nok), as its functional currency. Ari Karlsen is a currency trading strategist for Statoil. In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates Spot exchange rate: Yen 106/$ U.S. dollar interest rate per annum 10% Japanese Yen interest rate per annum 6% and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates. If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: What would the spot exchange rate (Yen/$) be in 90 days?…
Statoil, the national company in Norway, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is a Norwegian company, because it operates within the global oil market, it considers the U.S. dollar ($), rather than the Norwegian krone (Nok), as its functional currency. Ari Karlsen is a currency trading strategist for Statoil. In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates: Spot exchange rate: Yen 106/$U.S. dollar interest rate: per annum 10%Japanese Yen interest rate: per annum 6% and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates. If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: Would Ari make a profit by borrowing 1 million US dollar and investing in the money…
Suppose quotes for the dollar–euro exchange rate E$/€ are as follows: in New York $1.05 per euro, and in Tokyo $1.15 per euro. Describe how investors use arbitrage to take advantage of the difference in exchange rates. Explain how this process will affect the dollar price of the euro in New York and Tokyo.
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