ADM 2350 Final: Sample Final Exam Solns Revised April 19 2006.docx

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lavendercicada601

11 Jul 2014

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Part i (20 marks) there are 20 multiple choice questions in this part. Choose the one answer that best answers each question. The interest rate at which banks in the eurocurrency market lend to each other is known as the : eurocurrency currency rate (ecr, london interbank offer rate, exchange rate d. interest rate parity strengthen relative to the dollar. If the spot rate for swiss francs is sh. 6658/franc and the 180-day forward rate is. Which of the following types of debt securities protect investors against interest rate risk? a: extendible notes, original issue deep discount bonds, a and b only. The _______ the investor"s required rate of return on a bond, the _______ will be the value of the bond to the investor. a. lower, higher: higher, higher c. lower, lower, none of the above. Shareholders" equity includes all of the following except: common shares at par, treasury shares, contributed capital in excess of par, retained earnings.

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Refer to Table 1 to answer the following questions: Is the Japanese yen selling at a premium or discount relative to the U.S. dollar? What is the per annum percent discount/premium for the 90-day forward yen? Your firm currently has $15 million available to invest in a 6-month Eurocurrency market deposit. Assume the exchange rates and London Eurocurrency deposit rates from Table 1 are available to you. Ignoring transaction costs, calculate the maturity value (in U.S. dollars) of deposits in either dollars or Swiss francs. Is there an advantage to depositing in the currency with the higher deposit rate? Based on the 90-day forward rates and deposit rates in Table 1, does interest rate parity appear to hold between the dollar and the Swiss franc?

TABLE 1: EXCHANGE RATES AND DEPOSIT RATES
			Eurocurrency Deposit Rates
Currency	Direct	Indirect	30-Day	90-Day	180-Day
Britain (Pound)	1.92000	0.52083	0.13375	0.12969	0.12563
30-Day Forward	1.91000	0.52356
90-Day Forward	1.89120	0.52877
180-Day Forward	1.86850	0.53519
Japan (Yen)	0.00753	132.80210	0.08500	0.08188	0.07813
30-Day Forward	0.00752	132.97870
90-Day Forward	0.00750	133.33330
180-Day Forward	0.00749	133.51130
Switzerland (Franc)	0.76420	1.30856	0.08063	0.08125	0.07938
30-Day Forward	0.76340	1.30993
90-Day Forward	0.76170	1.31285
180-Day Forward	0.75990	1.31596
U.S. Dollar			0.06563	0.06813	0.06813

Consider a U.S.-based company that imports goods from Switzerland. The U.S. Company expects to make payment on a shipment of goods in six months. Because the payment will be in Swiss francs, the U.S. Company wants to hedge against a negative change in the value of the Swiss franc over the next six months. The U.S. risk-free rate is 2 percent, and the Swiss risk-free rate is 6 percent. Assume that interest rates are expected to remain fixed over the next six months. The current spot rate is USD0.5842/1CHF a. Indicate whether the U.S. Company should use a long or short forward contract to hedge currency risk. b. Calculate the no-arbitrage price at which the U.S. Company could enter into a forward contract that expires in six months.

ivoryporpoise804

Russo-Swiss Cross

Switzerland has long served as a cornerstone of banking convervatism and a safe port in a world of currency storms. Swiss banks had long been used by investors from all over the world as financially secure institutions that would pre-serve the depositorsâs wealth with confidentiality. A large part of the security offered was the Swiss franc itself. Russian citizens of wealth had used Swiss banks heavily in recent years as a place where they could shelter their capital from politics both inside Russia and the outside (EU and US) world. But beginning in the fall of 2014 the Russian rubleâs value began to slide against the Swiss franc, threatening their wealth. Use data in the table to answer the question.

Exchange Rates	Nov 7, 2013	Nov 7, 2014	Dec 4, 2014	Dec 16, 2014	Dec 24, 2014	Jan 16, 2014
Russian rubles per Swiss franc	35.286	48.252	56.249	70.285	55.362	76.639
Russian Rubles per US dollar	32.408	46.730	54.416	67.509	54.619	65.071
US dollars per Swiss franc	1.0888	1.0326	1.0337	1.0411	1.0136	1.1778

8. Mihail Khodorkovskyâs Dilemma. Mikhail Khodorkovsky was one of the infamous Russian oligarchs, accumulating billions of dollars in wealth in the mid 1990s with the fall of the Soviet Union. But in 2003 he had been imprisoned by the Russian state for a decade. Upon his release from prison in 2013 he had taken up residence in Switzerland with his money. In November 2014 Mikhail held a portfolio of USD200 million and CHF150 million in Swiss banks, in addition to accounts in Russia still holding RUB1.2 billion. Using the exchange rate table, answer the following:

What is the value of Mikhailâs portfolio as measured in Russian rubles?

What is the value of Mikhailâs portfolio as measured in Swiss francs?

What is the value of Mikhailâs portfolio as measured in US dollars?

Which currency demonstrated the greatest fluctuations in total value over the six dates?

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ADM 2350 Final: Sample Final Exam Solns Revised April 19 2006.docx

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