International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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What types of risks are interest rate andexchange rate swaps designed to mitigate?Why might one company prefer fixed-rate payments while another company prefers floating-ratepayments, or payments in one currency versusanother?
What is the current market view on EUR/USD? (Will it appreciate or depreciate? and why?)
How can we obtain a pay-domestic-floating, receive-foreign-fixed currency swap by using a pay-domestic-fixed, receive-foreign-fixed currency swap and an appropriate interest rate swap?
Given the following American put option prices and current underlying share price of $304.75, check to see whether the given put options violate the lower bound condition. Where you detect a violation, devise an arbitrage strategy that will yield a positive cash flow now with zero possible cash flows in the future.
Strike Put price
300 7.75
305 8.15
310 8.5
315 9.05
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- An increase in which of these factors increases the premium of a currency call option? Check all that apply: Spot exchange rate Volatility of the currency Strike price Time to expirationarrow_forwardHow do I backdate settlement prices on the Chicago Mercantile Exchange? Or is there another exchange that allows you to backdate settlement prices? Also, how do you calculate the cumulative gain closing out a market to market position on long contracts?arrow_forwarda)explain how to price a currency swap if either set of payments is at a floating rate. b)explain how a currency swap can be used to convert a loan in one currency into a loan in another currency, and provide some reasons for doing so. c)demonstrate that a currency swap contract is equivalent to a series of forward contracts. d)explain how a currency swap can be used to hedge a stream of foreign cash flows. e)define interest rate derivatives, and compare and contrast them against bond derivatives.arrow_forward
- 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?arrow_forwardWhat are the advantages or the disadvantages of hedging with currency options as opposed to future contracts in international financial transactions?arrow_forwardIn a fixed-for-fixed currency swap where country A’s interest rate is higher than country B’s interest rate, who is the lender in the implicit loan: the counterparty paying in country A’s currency or the counterparty paying in country B’s currency? Justify your answer.arrow_forward
- The bid-ask spread on an exchange rate implies _______. A. the transaction cost of foreign exchange B. the forward premium C. the currency option premium D. how an exchange rate will changearrow_forwardWhen a country adopts a fixed exchange rate regime, what is that the country has to give up (trade off)?arrow_forward
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