The difference between European- and American-style of exercising currency options is that European-style of options can be exercised ____. A. after the expiration date B. only on the expiration date C. any time up to the expiration date D. before the expiration date
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only on the expiration date
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- On initial recognition of IFRS, a foreign currency transaction should be recorded at:A. the spot exchange rateB. Forward exchange rateC. Historical exchange rate D. All of the aboveE. None of the abovWhat is the relationship or link between the forward rate and the foreign currency option premium? An option's value declines over time, but it does not do it evenly. Explain what that means for option valuation? Classify the following as a transaction reported in a sub-component of the current account or the capital and financial accounts of the two countries involved: An American tourist pays for a hotel in Paris with his American Express card.Assume that interest rate parity holds. When a currency trades at a forward premium,what does that imply about domestic rates relative to foreign interest rates? When acurrency trades at a forward discount?
- These are currency quotes found on a foreign market: GH 4.30/$, and GH 4.55/$. ii. Which currency is depreciating in value?All trade-offs in the followings are true about exchange rate regime EXCEPT: a. China reminbi vs U.S. dollar. b. all answers available in the selection are true. c. discretionary arrangement vs rules. d. independence vs cooperation.In the context of foreign exchange, how are non-deliverable currency situations typically handled? The difference between the contracted forward rate and the prevailing spot rate is settled in a widely traded currency, such as the USD. Non-deliverable currencies are avoided entirely in forward contracts to prevent any complications. Both parties agree to extend the contract until the currency becomes deliverable. The currencies are exchanged physically at a predetermined future date.
- Under a managed-float exchange rates regime, if the rate of inflation in Australia is less than the rate of inflation of its trading partners, the AUD will likely: a. depreciate against foreign currencies. b. be officially devalued by the Reserve Bank. c. appreciate against foreign currencies. d. be officially revalued by the Reserve BankA foreign subsidiary’s functional currency is its local currency, which has not experienced significant inflation. The current exchange rate at the balance sheet date is the appropriate exchange rate for translating. Choose the correct option. Insurance Expenses Prepaid Insurance a. Yes Yes b. Yes No c. No Yes d. No NoExplain the implications of interest rate parity and purchasing power for U.S. dollar exchange rate against the Euro. Then, evaluate the usefulness of relative PPP in predicting movements in foreign exchange rates on (i) the short-term basis and (ii) the long terms basis.
- A foreign subsidiary’s functional currency is its local currency, which has not experienced significant inflation. The current exchange rate at the balance sheet date is the appropriate exchange rate for translating:Which of the following factors influences the spread between forward and spot rates? a. which currency is denominated as the domestic currency b. the length of the forward exchange contract c. the current cross rate between the two currencies d. all are factors that may influence the spreada) Distinguish between transaction exposure, economic exposure, and translation exposure to currency risk. b) Discuss the key differences between the operation of a currency forward market and a futures market. c) Assume that the current (indirect for the UK) spot exchange rate of one pound to the dollar is $1.60/£ and that the corresponding three-month forward exchange rate is $1.59/£. Also, assume that the annualised 3-month interest rate on the pound is currently 4.00% and that the corresponding interest rate on the US dollar is 2.50%. Required:(i) Given the information above, will you invest in the pound or borrow the pound? Explain why.(ii) Calculate the amount of profit that you will realise on each pound that you borrow or invest.
