MarketforForeignExchange(国际财务管理,英文版)
国际财务管理(考试要点整理)
Chapt3 Balance of Payments 国际收支平衡表
9. The Balance of Payments
The Balance of Payments is the statistical record of a country ’s international transactions over a certain period of time presented in the form of double-entry bookkeeping. 特定时间区段内以复 式记账法对一国的国际交易的统计记录。 The Balance of Payments Identity 国际收支平衡恒等式 BCA + BKA + BRA = 0 Where: BCA = balance on current account BKA = balance on capital account BRA = balance on the reserves account Under a pure flexible exchange rate regime, BCA + BKA = 0
7. Incompatible trinity or macroeconomic trilemma
Impossible triangle refers to the economic, social and fiscal and monetary policy targeting faced many difficulties, difficult to get three goals simultaneously. In terms of monetary policies, free capital flow, exchange rate stability and monetary policy independence nor the three too. “不可 能三角” （Impossible triangle）是指经济社会和财政金融政策目标选择面临诸多困境，难以同 时获得三个方面的目标。在金融政策方面，资本自由流动、汇率稳定和货币政策独立性三者 也不可能兼得。
OptionsonForeignExchange(国际财务管理,英文版)
Daily Resettlement: An Example
Currently $1 = ¥140 and it appears that the dollar is strengthening.
If you enter into a 3-month futures contract to sell ¥at the rate of $1 = ¥150 you will make money if the yen depreciates. The contract size is ¥12,500,000
Futures are standardized contracts trading on organized exchanges with daily resettlement through a clearinghouse.
Irwin/McGraw-Hill
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Irwin/McGraw-Hill
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Futures Contracts: Preliminaries
A futures contract is like a forward contract:
Second Edition
EUN / RESNICK
Irwin/McGraw-Hill
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Chapter Outline
国际财务管理(英文版)课后习题答案6
CHAPTER 5 THE MARKET FOR FOREIGN EXCHANGESUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Give a full definition of the market for foreign exchange.Answer: Broadly defined, the foreign exchange (FX) market encompasses the conversion of purchasing power from one currency into another, bank deposits of foreign currency, the extension of credit denominated in a foreign currency, foreign trade financing, and trading in foreign currency options and futures contracts.2. What is the difference between the retail or client market and the wholesale or interbank market for foreign exchange?Answer: The market for foreign exchange can be viewed as a two-tier market. One tier is the wholesale or interbank market and the other tier is the retail or client market. International banks provide the core of the FX market. They stand willing to buy or sell foreign currency for their own account. These international banks serve their retail clients, corporations or individuals, in conducting foreign commerce or making international investment in financial assets that requires foreign exchange. Retail transactions account for only about 14 percent of FX trades. The other 86 percent is interbank trades between international banks, or non-bank dealers large enough to transact in the interbank market.3. Who are the market participants in the foreign exchange market?Answer: The market participants that comprise the FX market can be categorized into five groups: international banks, bank customers, non-bank dealers, FX brokers, and central banks. International banks provide the core of the FX market. Approximately 100 to 200 banks worldwide make a market in foreign exchange, i.e., they stand willing to buy or sell foreign currency for their own account. These international banks serve their retail clients, the bank customers, in conducting foreign commerce or making international investment in financial assets that requires foreign exchange. Non-bank dealers are large non-bank financial institutions, such as investment banks, mutual funds, pension funds, and hedge funds, whose size and frequency of trades make it cost- effective to establish their own dealing rooms to trade directly in the interbank market for their foreign exchange needs.Most interbank trades are speculative or arbitrage transactions where market participants attempt to correctly judge the future direction of price movements in one currency versus another or attempt to profit from temporary price discrepancies in currencies between competing dealers.FX brokers match dealer orders to buy and sell currencies for a fee, but do not take a position themselves. Interbank traders use a broker primarily to disseminate as quickly as possible a currency quote to many other dealers.Central banks sometimes intervene in the foreign exchange market in an attempt to influence the price of its currency against that of a major trading partner, or a country that it “fixes” or “pegs” its currency against. Intervention is the process of using foreign currency reser ves to buy one’s own currency in order to decrease its supply and thus increase its value in the foreign exchange market, or alternatively, selling one’s own currency for foreign currency in order to increase its supply and lower its price.4. How are foreign exchange transactions between international banks settled?Answer: The interbank market is a network of correspondent banking relationships, with large commercial banks maintaining demand deposit accounts with one another, called correspondent bank accounts. The correspondent bank account network allows for the efficient functioning of the foreign exchange market. As an example of how the network of correspondent bank accounts facilities international foreign exchange transactions, consider a U.S. importer desiring to purchase merchandise invoiced in guilders from a Dutch exporter. The U.S. importer will contact his bank and inquire about the exchange rate. If the U.S. importer accepts the offered exchange rate, the bank will debit the U.S. importer’s account for the purchase of the Dutch guilders. The bank will instruct its correspondent bank in the Netherlands to debit its correspondent bank account the appropriate amount of guilders and to credit the Dutch exporter’s bank account. The importer’s bank will then debit its books to offset the debit of U.S. importer’s account, reflecting the decrease in its correspondent bank account balan ce.5. What is meant by a currency trading at a discount or at a premium in the forward market?Answer: The forward market involves contracting today for the future purchase or sale of foreign exchange. The forward price may be the same as the spot price, but usually it is higher (at a premium) or lower (at a discount) than the spot price.6. Why does most interbank currency trading worldwide involve the U.S. dollar?Answer: Trading in currencies worldwide is against a common currency that has international appeal. That currency has been the U.S. dollar since the end of World War II. However, the euro and Japanese yen have started to be used much more as international currencies in recent years. More importantly, trading would be exceedingly cumbersome and difficult to manage if each trader made a market against all other currencies.7. Banks find it necessary to accommodate their clients’ needs to buy or sell FX forward, in many instances for hedging purposes. How can the bank eliminate the currency exposure it has created for itself by accommodating a client’s forward transaction?Answer: Swap transactions provide a means for the bank to mitigate the currency exposure in a forward trade. A swap transaction is the simultaneous sale (or purchase) of spot foreign exchange against a forward purchase (or sale) of an approximately equal amount of the foreign currency. To illustrate, suppose a bank customer wants to buy dollars three months forward against British pound sterling. The bank can handle this trade for its customer and simultaneously neutralize the exchange rate risk in the trade by selling (borrowed) British pound sterling spot against dollars. The bank will lend the dollars for three months until they are needed to deliver against the dollars it has sold forward. The British pounds received will be used to liquidate the sterling loan.8. A CD/$ bank trader is currently quoting a small figure bid-ask of 35-40, when the rest of the market is trading at CD1.3436-CD1.3441. What is implied about the trader’s beliefs by his prices?Answer: The trader must think the Canadian dollar is going to appreciate against the U.S. dollar and therefore he is trying to increase his inventory of Canadian dollars by discouraging purchases of U.S. dollars by standing willing to buy $ at only CD1.3435/$1.00 and offering to sell from inventory at the slightly lower than market price of CD1.3440/$1.00.9. What is triangular arbitrage? What is a condition that will give rise to a triangular arbitrage opportunity?Answer: Triangular arbitrage is the process of trading out of the U.S. dollar into a second currency, then trading it for a third currency, which is in turn traded for U.S. dollars. The purpose is to earn anarbitrage profit via trading from the second to the third currency when the direct exchange between the two is not in alignment with the cross exchange rate.Most, but not all, currency transactions go through the dollar. Certain banks specialize in making a direct market between non-dollar currencies, pricing at a narrower bid-ask spread than the cross-rate spread. Nevertheless, the implied cross-rate bid-ask quotations impose a discipline on the non-dollar market makers. If their direct quotes are not consistent with the cross exchange rates, a triangular arbitrage profit is possible.PROBLEMS1. Using Exhibit 5.4, calculate a cross-rate matrix for the euro, Swiss franc, Japanese yen, and the British pound. Use the most current American term quotes to calculate the cross-rates so that the triangular matrix resulting is similar to the portion above the diagonal in Exhibit 5.6.Solution: The cross-rate formula we want to use is:S(j/k) = S($/k)/S($/j).The triangular matrix will contain 4 x (4 + 1)/2 = 10 elements.¥SF £$Euro 138.05 1.5481 .6873 1.3112 Japan (100) 1.1214 .4979 .9498 Switzerland .4440 .8470U.K 1.90772. Using Exhibit 5.4, calculate the one-, three-, and six-month forward cross-exchange rates between the Canadian dollar and the Swiss franc using the most current quotations. State the forward cross-rates in “Canadian” terms.Solution: The formulas we want to use are:F N(CD/SF) = F N($/SF)/F N($/CD)orF N(CD/SF) = F N(CD/$)/F N(SF/$).We will use the top formula that uses American term forward exchange rates.F1(CD/SF) = .8485/.8037 = 1.0557F3(CD/SF)= .8517/.8043 = 1.0589F6(CD/SF)= .8573/.8057 = 1.06403. Restate the following one-, three-, and six-month outright forward European term bid-ask quotes in forward points.Spot 1.3431-1.3436One-Month 1.3432-1.3442Three-Month 1.3448-1.3463Six-Month 1.3488-1.3508Solution:One-Month 01-06Three-Month 17-27Six-Month 57-724. Using the spot and outright forward quotes in problem 3, determine the corresponding bid-ask spreads in points.Solution:Spot 5One-Month 10Three-Month 15Six-Month 205. Using Exhibit 5.4, calculate the one-, three-, and six-month forward premium or discount for the Canadian dollar versus the U.S. dollar using American term quotations. For simplicity, assume each month has 30 days. What is the interpretation of your results?Solution: The formula we want to use is:f N,CD= [(F N($/CD) - S($/CD/$)/S($/CD)] x 360/Nf1,CD= [(.8037 - .8037)/.8037] x 360/30 = .0000f3,CD= [(.8043 - .8037)/.8037] x 360/90 = .0030f6,CD= [(.8057 - .8037)/.8037] x 360/180 = .0050The pattern of forward premiums indicates that the Canadian dollar is trading at an increasing premium versus the U.S. dollar. That is, it becomes more expensive (in both absolute and percentage terms) to buy a Canadian dollar forward for U.S. dollars the further into the future one contracts.6. Using Exhibit 5.4, calculate the one-, three-, and six-month forward premium or discount for the U.S. dollar versus the British pound using European term quotations. For simplicity, assume each month has 30 days. What is the interpretation of your results?Solution: The formula we want to use is:f N,$= [(F N (£/$) - S(£/$))/S(£/$)] x 360/Nf1,$= [(.5251 - .5242)/.5242] x 360/30 = -.0023f3,$= [(.5268 - .5242)/.5242] x 360/90 = -.0198f6,$= [(.5290 - .5242)/.5242] x 360/180 = -.0183The pattern of forward premiums indicates that the British pound is trading at a discount versus the U.S. dollar. That is, it becomes more expensive to buy a U.S. dollar forward for British pounds (in absolute but not percentage terms) the further into the future one contracts.7. Given the following information, what are the NZD/SGD currency against currency bid-ask quotations?American Terms European TermsBank Quotations Bid Ask Bid AskNew Zealand dollar .7265 .7272 1.3751 1.3765Singapore dollar .6135 .6140 1.6287 1.6300Solution: Equation 5.12 from the text implies S b(NZD/SGD) = S b($/SGD) x S b(NZD/$) = .6135 x 1.3765 = .8445. The reciprocal, 1/S b(NZD/SGD)= S a(SGD/NZD)= 1.1841. Analogously, it is implied that S a(NZD/SGD) = S a($/SGD) x S a(NZD/$) = .6140 x 1.3765 = .8452. The reciprocal, 1/S a(NZD/SGD) = S b(SGD/NZD)= 1.1832. Thus, the NZD/SGD bid-ask spread is NZD0.8445-NZD0.8452 and the SGD/NZD spread is SGD1.1832-SGD1.1841.8. Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting €0.7627/$1.00 and Credit Suisse is offering SF1.1806/$1.00. You learn that UBS is making a direct market between the Swiss franc and the euro, with a current €/SF quote of .6395. Show how you can make a triangular arbitrage profit by trading at these prices. (Ignore bid-ask spreads for this problem.) Assume you have $5,000,000 with which to conduct the arbitrage. What happens if you initially sell dollars for Swiss francs? What €/SF price will eliminate triangular arbitrage?Solution: To make a triangular arbitrage profit the Deutsche Bank trader would sell $5,000,000 to Dresdner Bank at €0.7627/$1.00. This trade would yield €3,813,500= $5,000,000 x .7627. The Deutsche Bank trader would then sell the euros for Swiss francs to Union Bank of Switzerland at a price of €0.6395/SF1.00, yielding SF5,963,253 = €3,813,500/.6395. The Deutsche Bank trader will resell the Swiss francs to Credit Suisse for $5,051,036 = SF5,963,253/1.1806, yielding a triangular arbitrage profit of $51,036.If the Deutsche Bank trader initially sold $5,000,000 for Swiss francs, instead of euros, the trade would yield SF5,903,000 = $5,000,000 x 1.1806. The Swiss francs would in turn be traded for euros to UBS for €3,774,969= SF5,903,000 x .6395. The euros would be resold to Dresdner Bank for $4,949,481 = €3,774,969/.7627, or a loss of $50,519. Thus, it is necessary to conduct the triangular arbitrage in the correct order.The S(€/SF)cross exchange rate should be .7627/1.1806 = .6460. This is an equilibrium rate at which a triangular arbitrage profit will not exist. (The student can determine this for himself.) A profit results from the triangular arbitrage when dollars are first sold for euros because Swiss francs are purchased for euros at too low a rate in comparison to the equilibrium cross-rate, i.e., Swiss francs are purchased for only €0.6395/SF1.00 instead of the no-arbitrage rate of €0.6460/SF1.00. Similarly, when dollars are first sold for Swiss francs, an arbitrage loss results because Swiss francs are sold for euros at too low a rate, resulting in too few euros. That is, each Swiss franc is sold for €0.6395/SF1.00 instead of the higher no-arbitrage rate of €0.6460/SF1.00.9. The current spot exchange rate is $1.95/£ and the three-month forward rate is $1.90/£. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be $1.92/£ in three months. Assume that you would like to buy or sell £1,000,000.a. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation?b. What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be $1.86/£.Solution:a. If you believe the spot exchange rate will be $1.92/£ in three months, you should buy £1,000,000 forward for $1.90/£. Your expected profit will be:$20,000 = £1,000,000 x ($1.92 -$1.90).b. If the spot exchange rate actually turns out to be $1.86/£ in three months, your loss from the long position will be:-$40,000 = £1,000,000 x ($1.86 -$1.90).10. Omni Advisors, an international pension fund manager, plans to sell equities denominated in Swiss Francs (CHF) and purchase an equivalent amount of equities denominated in South African Rands (ZAR).Omni will realize net proceeds of 3 million CHF at the end of 30 days and wants to eliminate the risk that the ZAR will appreciate relative to the CHF during this 30-day period. The following exhibit shows current exchange rates between the ZAR, CHF, and the U.S. dollar (USD).Currency Exchange Ratesa.Describe the currency transaction that Omni should undertake to eliminate currency riskover the 30-day period.b.Calculate the following:• The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equityportfolio.•The current value of Omni’s Swiss equity portfolio in ZAR.• The annualized forward premium or discount at which the ZAR is trading versus theCHF.CFA Guideline Answer:a.To eliminate the currency risk arising from the possibility that ZAR will appreciateagainst the CHF over the next 30-day period, Omni should sell 30-day forward CHFagainst 30-day forward ZAR delivery (sell 30-day forward CHF against USD and buy30-day forward ZAR against USD).b.The calculations are as follows:•Using the currency cross rates of two forward foreign currencies and three currencies (CHF, ZAR, USD), the exchange would be as follows:--30 day forward CHF are sold for USD. Dollars are bought at the forward sellingprice of CHF1.5285 = $1 (done at ask side because going from currency into dollars)--30 day forward ZAR are purchased for USD. Dollars are simultaneously sold to purchase ZAR at the rate of 6.2538 = $1 (done at the bid side because going fromdollars into currency)--For every 1.5285 CHF held, 6.2538 ZAR are received; thus the cross currency rate is1.5285 CHF/6.2538 ZAR = 0.244411398.• At the time of execution of the forward contracts, the v alue of the 3 million CHF equity portfolio would be 3,000,000 CHF/0.244411398 = 12,274,386.65 ZAR.• To calculate the annualized premium or discount of the ZAR against the CHF requires comparison of the spot selling exchange rate to the forward selling price of CHF for ZAR.Spot rate = 1.5343 CHF/6.2681 ZAR = 0.24477912030 day forward ask rate 1.5285 CHF/6.2538 ZAR = 0.244411398The premium/discount formula is:[(forward rate – spot rate) / spot rate] x (360 / # day contract) =[(0.244411398 – 0.24477912) / 0.24477912] x (360 / 30) =-1.8027126 % = -1.80% discount ZAR to CHFMINI CASE: SHREWSBURY HERBAL PRODUCTS, LTD.Shrewsbury Herbal Products, located in central England close to the Welsh border, is an old-line producer of herbal teas, seasonings, and medicines. Its products are marketed all over the United Kingdom and in many parts of continental Europe as well.Shrewsbury Herbal generally invoices in British pound sterling when it sells to foreign customers in order to guard against adverse exchange rate changes. Nevertheless, it has just received an order from a large wholesaler in central France for £320,000 of its products, conditional upon delivery being made in three months’ time and the order invoiced in euros.Shrewsbury’s controller, Elton Peters, is concerned with whether the pound will appreciate versus the euro over the next three months, thus eliminating all or most of the profit when the euro receivable is paid. He thinks this is an unlikely possibility, but he decides to contact the firm’s banker for suggestions about hedging the exchange rate exposure.Mr. Peters learns from the banker that the current spot e xchange rate is €/£ is €1.4537, thus the invoice amount should be €465,184. Mr. Peters also learns that the three-month forward rates for the pound and the euro versus the U.S. dollar are $1.8990/£1.00 and $1.3154/€1.00, respectively. The banker offers to set up a forward hedge for selling the euro receivable for pound sterling based on the €/£ forward cross-exchange rate implicit in the forward rates against the dollar.What would you do if you were Mr. Peters?Suggested Solution to Shrewsbury Herbal Products, Ltd.Note to Instructor: This elementary case provides an intuitive look at hedging exchange rate exposure. Students should not have difficulty with it even though hedging will not be formally discussed until Chapter 8. The case is consistent with the discussion that accompanies Exhibit 5.9 of the text. Professor of Finance, Banikanta Mishra, of Xavier Institute of Management – Bhubaneswar, India contributed to this solution.Suppose Shrewsbury sells at a twenty percent markup. Thus the cost to the firm of the £320,000 order is £256,000. Thus, the pound could appreciate to €465,184/£256,000 = €1.8171/1.00 before all profit was eliminated. This seems rather unlikely. Nevertheless, a ten percent appreciation of the pound (€1.4537 x 1.10) to €1.5991/£1.00 would only yield a profit of £34,904 (= €465,184/1.5991 - £256,000). Shrewsbury can hedge the exposure by selling the euros forward for British pounds at F3(€/£) = F3($/£) ÷ F3($/€) = 1.8990 ÷ 1.3154 = 1.4437. At this forward exchange rate, Shrewsbury can “lock-in” a price of £322,217 (= €465,184/1.4437) for the sale. The forward exchange rate indicates that the euro is trading at a premium to the British pound in the forward market. Thus, the forward hedge allows Shrewsbury to lock-in a greater amount (£2,217) than if the euro receivable was converted into pounds at the current spotIf the euro was trading at a forward discount, Shrewsbury would end up locking-in an amount less than £320,000. Whether that would lead to a loss for the company would depend upon the extent of the discount and the amount of profit built into the price of £320,000. Only if the forward exchange rate is even with the spot rate will Shrewsbury receive exactly £320,000.Obviously, Shrewsbury could ensure that it receives exactly £320,000 at the end of three-month accounts receivable period if it could invoice in £. That, however, is not acceptable to the French wholesaler. When invoicing in euros, Shrewsbury could establish the euro invoice amount by use of the forward exchange rate instead of the current spot rate. The invoice amount in that case would be €461,984 = £320,000 x 1.4437. Shrewsbury can now lock-in a receipt of £320,000 if it simultaneously hedges its euro exposure by selling €461,984 at the forward rate of 1.4437. That is, £320,000 = €461,984/1.4437.。
国际财务管理英文版第版马杜拉答案Chapter
Chapter 3International Financial Markets Lecture OutlineMotives for Using International Financial Markets Motives for Investing in Foreign MarketsMotives for Providing Credit in Foreign MarketsMotives for Borrowing in Foreign MarketsForeign Exchange MarketHistory of Foreign ExchangeForeign Exchange TransactionsExchange QuotationsForeignInterpretingCurrency Futures and Options MarketsInternational Money MarketOrigins and DevelopmentStandardizing Global Bank RegulationsInternational Credit MarketSyndicated LoansInternational Bond MarketEurobond MarketDevelopment of Other Bond MarketsComparing Interest Rates Among CurrenciesInternational Stock MarketsIssuance of Foreign Stock in the U.S.Issuance of Stock in Foreign MarketsComparison of International Financial MarketsHow Financial Markets Affect an MNC’s ValueChapter ThemeThis chapter identifies and discusses the various international financial markets used by MNCs. These markets facilitate day-to-day operations of MNCs, including foreign exchange transactions, investing in foreign markets, and borrowing in foreign markets.Topics to Stimulate Class Discussion1. Why do international financial markets exist?2. How do banks serve international financial markets?3. Which international financial markets are most important to a firm that consistently needsshort-term funds? What about a firm that needs long-term funds?Critical debateShould firms that go public engage in international offerings?Proposition Yes. When a firm issues shares to the public for the first time in an initial public offering (IPO), it is naturally concerned about whether it can place all of its shares at a reasonable price. It will be able to issue its shares at a higher price by attracting more investors. It will increase its demand by spreading the shares across countries. The higher the price at which it can issue shares, the lower is its cost of using equity capital. It can also establish a global name by spreading shares across countries.Opposing view No. If a firm spreads its shares across different countries at the time of the IPO, there will be less publicly traded shares in the home country. Thus, it will not have as much liquidity in the secondary market. Investors desire shares that they can easily sell in the secondary market, which means that they require that the shares have liquidity. To the extent that a firm reduces its liquidity in the home country by spreading its share across countries, it may not attract sufficient home demand for the shares. Thus, its efforts to create global name recognition may reduce its name recognition in the home country.With whom do you agree? State your reasons. Use InfoTrac or some other search engine to learn more about this issue. Which argument do you support? Offer your own opinion on this issue.ANSWER: The key is that students recognize the tradeoff involved. A firm that engages in a relatively small IPO will have limited liquidity even when all of the stock is issued in the home country. Thus, it should not consider issuing stock internationally. However, firms with larger stock offerings may be in a position to issue a portion of their shares outside the home country. They should not spread the stocks across several countries, but perhaps should target one or two countries where they conduct substantial business. They want to ensure sufficient liquidity in each of the foreign countries where they sell shares.Stock Markets are inefficientPropositionI cannot believe that if the value of the euro in terms of, say, the British pound increases three days in a row, on the fourth day there is still a 50:50 chance that it will go up or down in value. I think that most investors will see a trend and will buy, therefore the price is morelikely to go up. Also, if the forward market predicts a rise in value, on average, surely it is going to rise in value. In other words, currency prices are predictable. And finally, if it were so unpredictable and therefore unprofitable to the speculator, how is it that there is such a vast sum of money being traded every day for speculative purposes – there is no smoke without fire.The simple answer is that if that is what you believe, buy currencies that have viewOpposingincreased three days in a row and on average you should make a profit, buy currencies where the forward market shows an increase in value. The fact is that there are a lot of investors with just your sort of views. The market traders know all about such beliefs and will price the currency so that such easy profit (their loss) cannot be made. Look at past currency rates for yourself, check all fourth day changes after three days of rises, any difference is going to be not enough to cover transaction costs or trading expenses and the slight inaccuracy in your figures which are likely to be closing day mid point of the bid/ask spread. No, all currency movements are related to information and no-one knows if tomorrows news will be better or worse than expected.With whom do you agree? Could there be undiscovered patterns? Could some movements not be related to information? Could some private news be leaking out?ANSWER: Clearly there are no obvious patterns. Discussion on the impossibility of obvious patterns is worth emphasizing. However, does market inefficiency necessarily involve patterns, could market manipulation be occasional. There is worrying evidence from share price movements that there is unusual movement before announcements on many occasions, so the ideathat traders do not occasionally collude and move the price without supporting economic evidence is not an unreasonable view. Proof is however difficult as we have to separate anticipation from prior knowledge, the lucky speculator from the speculator who was in the know.Answers to End of Chapter Questions1. Motives for Investing in Foreign Money Markets. Explain why an MNC may invest fundsin a financial market outside its own country.ANSWER: The MNC may be able to earn a higher interest rate on funds invested in a financial market outside of its own country. In addition, the exchange rate of the currency involved may be expected to appreciate.2. Motives for Providing Credit in Foreign Markets. Explain why some financial institutionsprefer to provide credit in financial markets outside their own country.ANSWER: Financial institutions may believe that they can earn a higher return by providing credit in foreign financial markets if interest rate levels are higher and if the economic conditions are strong so that the risk of default on credit provided is low. The institutions may also want to diversity their credit so that they are not too exposed to the economic conditions in any single country.3. Exchange Rate Effects on Investing. Explain how the appreciation of the Australian dollaragainst the euro would affect the return to a French firm that invested in an Australian money market security.ANSWER: If the Australian dollar appreciates over the investment period, this implies that the French firm purchased the Australian dollars to make its investment at a lower exchange rate than the rate at which it will convert A$ to euros when the investment period is over.Thus, it benefits from the appreciation. Its return will be higher as a result of this appreciation.4. Exchange Rate Effects on Borrowing. Explain how the appreciation of the Japanese yenagainst the UK pound would affect the return to a UK firm that borrowed Japanese yen and used the proceeds for a UK project.ANSWER: If the Japanese yen appreciates over the borrowing period, this implies that the UK firm converted yen to pounds at a lower exchange rate than the rate at which it paid for yen at the time it would repay the loan. Thus, it is adversely affected by the appreciation. Its cost of borrowing will be higher as a result of this appreciation.5. Bank Services. List some of the important characteristics of bank foreign exchange servicesthat MNCs should consider.ANSWER: The important characteristics are (1) competitiveness of the quote, (2) the firm’s relationship with the bank, (3) speed of execution, (4) advice about current market conditions, and (5) forecasting advice.6. Bid/ask Spread. Delay Bank’s bid price for US dollars is £0.53 and its ask price is £0.55.What is the bid/ask percentage spread?ANSWER: (£0.55– £0.53)/£0.55 = .036 or 3.6%7. Bid/ask Spread. Compute the bid/ask percentage spread for Mexican peso in which the askrate is 20.6 New peso to the dollar and the bid rate is 21.5 New peso to the dollar.ANSWER: direct rates are 1/20.6 = $0.485:1 peso as the ask rate and 1/21.5 = $0.465:1 peso as the bid rate so the spread is[($0.485 – $0.465)/$0.485] = .041, or 4.1%. Note that the spread is fro the Mexiccan peso not the dollar.8. Forward Contract. The Wolfpack ltd is a UK exporter that invoices its exports to the UnitedStates in dollars. If it expects that the dollar will appreciate against the pound in the future, should it hedge its exports with a forward contract? Explain..ANSWER: The forward contract can hedge future receivables or payables in foreign currencies to insulate the firm against exchange rate risk. Yet, in this case, the Wolfpack Corporation should not hedge because it would benefit from appreciation of the dollar when it converts the dollars to pounds.9. Euro. Explain the foreign exchange situation for countries that use the euro when theyengage in international trade among themselves.ANSWER: There is no foreign exchange. Euros are used as the medium of exchange.10. Indirect Exchange Rate. If the direct exchange rate of the euro is worth £0.685, what is theindirect rate of the euro? That is, what is the value of a pound in euros?ANSWER: 1/0.685 = 1.46 euros.11. Cross Exchange Rate. Assume Poland’s currency (the zloty) is worth £0.17 and theJapanese yen is worth £0.005. What is the cross (implied) rate of the zloty with respect to yen?ANSWER: £0.17/£0.005 = 34 zloty:1 yen12. Syndicated Loans. Explain how syndicated loans are used in international markets.ANSWER: A large MNC may want to obtain a large loan that no single bank wants to accommodate by itself. Thus, a bank may create a syndicate whereby several other banks also participate in the loan.13. Loan Rates. Explain the process used by banks in the Eurocredit market to determine the rateto charge on loans.ANSWER: Banks set the loan rate based on the prevailing LIBOR, and allow the loan rate to float (change every 6 months) in accordance with changes in LIBOR.14. International Markets. What is the function of the international money market? Brieflydescribe the reasons for the development and growth of the European money market. Explain how the international money, credit, and bond markets differ from one another.ANSWER: The function of the international money market is to efficiently facilitate the flow of international funds from firms or governments with excess funds to those in need of funds.Growth of the European money market was largely due to (1) regulations in the U.S. that limited foreign lending by U.S. banks; and (2) regulated ceilings placed on interest rates of dollar deposits in the U.S. that encouraged deposits to be placed in the Eurocurrency market where ceilings were nonexistent.The international money market focuses on short-term deposits and loans, while the international credit market is used to tap medium-term loans, and the international bond market is used to obtain long-term funds (by issuing long-term bonds).15. Evolution of Floating Rates. Briefly describe the historical developments that led to floatingexchange rates as of 1973.ANSWER: Country governments had difficulty in maintaining fixed exchange rates. In 1971, the bands were widened. Yet, the difficulty of controlling exchange rates even within these wider bands continued. As of 1973, the bands were eliminated so that rates could respond to market forces without limits (although governments still did intervene periodically).16. International Diversification. Explain how the Asian crisis would have affected the returnsto a UK. firm investing in the Asian stock markets as a means of international diversification.[See the chapter appendix.]ANSWER: The returns to the UK firm would have been reduced substantially as a result of the Asian crisis because of both declines in the Asian stock markets and because of currency depreciation. For example, the Indonesian stock market declined by about 27% from June 1997 to June 1998. Furthermore, the Indonesian rupiah declined against the U.S. dollar by 84%.17.Eurocredit Loans.a.With regard to Eurocredit loans, who are the borrowers?b. Why would a bank desire to participate in syndicated Eurocredit loans?c. What is LIBOR and how is it used in the Eurocredit market?ANSWER:a. Large corporations and some government agencies commonly request Eurocredit loans.b. With a Eurocredit loan, no single bank would be totally exposed to the risk that theborrower may fail to repay the loan. The risk is spread among all lending banks within the syndicate.c. LIBOR (London interbank offer rate) is the rate of interest at which banks in Europe lendto each other. It is used as a base from which loan rates on other loans are determined in the Eurocredit market.18. Foreign Exchange. You just came back from Canada, where the Canadian dollar was worth£0.43. You still have C$200 from your trip and could exchange them for pounds at the airport, but the airport foreign exchange desk will only buy them for £0.40. Next week, you will be going to Mexico and will need pesos. The airport foreign exchange desk will sell you pesos for £0.055 per peso. You met a tourist at the airport who is from Mexico and is on his way to Canada. He is willing to buy your C$200 for 1500 New Pesos. Should you accept the offer or cash the Canadian dollars in at the airport? Explain.ANSWER: Exchange with the tourist. If you exchange the C$ for pesos at the foreign exchange desk, the C$200 is multiplied by £0.40 and then divided by £0.055 ie a ratio of £0.40/0.055 = 7.27 pesos to the C$. The total pesos would be 200 x 7.27 = 1454 pesos, a little less than is being offered by the tourist.19. Foreign Stock Markets. Explain why firms may issue stock in foreign markets. Why mightMNCs issue more stock in Europe since the conversion to a single currency in 1999?ANSWER: Firms may issue stock in foreign markets when they are concerned that their home market may be unable to absorb the entire issue. In addition, these firms may have foreign currency inflows in the foreign country that can be used to pay dividends on foreign-issued stock. They may also desire to enhance their global image. Since the euro can be used in several countries, firms may need a large amount of euros if they are expanding across Europe.20. Stock Market Integration. Bullet plc a UK firm, is planning to issue new shares on theLondon Stock Exchange this month. The only decision still to be made is the specific day on which the shares will be issued. Why do you think Bullet monitors results of the Tokyo stock market every morning?ANSWER: The UK stock market prices sometimes follow Japanese market prices. Thus, the firm would possibly be able to issue its stock at a higher price in the UK if it can use the Japanese market as an indicator of what will happen in the UK market. However, this indicator will not always be accurate.Advanced Questions21. Effects of September 11. Why do you think the terrorist attack on the U.S. was expected tocause a decline in U.S. interest rates? Given the expectations for a potential decline in U.S.interest rates and stock prices, how were capital flows between the U.S. and other countries likely affected?ANSWER: The attack was expected to cause a weaker economy, which would result in lower U.S. interest rates. Given the lower interest rates, and the weak stock prices, the amount of funds invested by foreign investors in U.S. securities would be reduced.22. International Financial Markets. Carrefour the French Supermarket chain has established retail outlets worldwide. These outlets are massive and contain products purchased locally as well as imports. As Carrefour generates earnings beyond what it needs abroad, it may remit those earnings back to France. Carrefour is likely to build additional outlets especially in China.a. Explain how the Carrefour outlets in China would use the spot market in foreign exchange.ANSWER:The Carrefour stores in China need other currencies to buy products from other countries, and must convert the Chinese currency (yuan) into the other currencies in the spot market to purchase these products. They also could use the spot market to convert excess earnings denominated in yuan into euros, which would be remitted to the French parent.b. Explain how Carrefour might utilize the international money markets when it isestablishing other Carrefour stores in Asia.ANSWER: Carrefour may need to maintain some deposits in the Eurocurrency market that can be used (when needed) to support the growth of Carrefour stores in various foreign markets. When some Carrefour stores in foreign markets need funds, they borrow from banks in the Eurocurrency market. Thus, the Eurocurrency market serves as a deposit or lending source for Carrefour and other MNCs on a short-term basis. (Eurocurrency refers to international currencies, most likely the dollar, not just the euro!)c. Explain how Carrefour could use the international bond market to finance theestablishment of new outlets in foreign markets.ANSWER: Carrefour could issue bonds in the Eurobond market to generate funds needed to establish new outlets. The bonds may be denominated in the currency that is needed; then, once the stores are established, some of the cash flows generated by those stores could be used to pay interest on the bonds.23.Interest Rates. Why do interest rates vary among countries? Why are interest rates normallysimilar for those European countries that use the euro as their currency? Offer a reason why the government interest rate of one country could be slightly higher than that of the government interest rate of another country, even though the euro is the currency used in both countries.ANSWER: Interest rates in each country are based on the supply of funds and demand for funds for a given currency. However, the supply and demand conditions for the euro are dictated by all participating countries in aggregate, and do not vary among participating countries. Yet, the government interest rate in one country that uses the euro could be slightly higher than others that use the euro if it is subject to default risk. The higher interest rate would reflect a risk premium.Blades plc Case Study。
国际财务管理(英文版)课后习题答案8
CHAPTER 7 FUTURES AND OPTIONS ON FOREIGN EXCHANGESUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Explain the basic differences between the operation of a currency forward market and a futures market.Answer: The forward market is an OTC market where the forward contract for purchase or sale of foreign currency is tailor-made between the client and its international bank. No money changes hands until the maturity date of the contract when delivery and receipt are typically made. A futures contract is an exchange-traded instrument with standardized features specifying contract size and delivery date. Futures contracts are marked-to-market daily to reflect changes in the settlement price. Delivery is seldom made in a futures market. Rather a reversing trade is made to close out a long or short position.2. In order for a derivatives market to function most efficiently, two types of economic agents are needed: hedgers and speculators. Explain.Answer: Two types of market participants are necessary for the efficient operation of a derivatives market: speculators and hedgers. A speculator attempts to profit from a change in the futures price. To do this, the speculator will take a long or short position in a futures contract depending upon his expectations of future price movement. A hedger, on-the-other-hand, desires to avoid price variation by locking in a purchase price of the underlying asset through a long position in a futures contract or a sales price through a short position. In effect, the hedger passes off the risk of price variation to the speculator who is better able, or at least more willing, to bear this risk.3. Why are most futures positions closed out through a reversing trade rather than held to delivery?Answer: In forward markets, approximately 90 percent of all contracts that are initially established result i n the short making delivery to the long of the asset underlying the contract. This is natural because the terms of forward contracts are tailor-made between the long and short. By contrast, only about one percent of currency futures contracts result in delivery. While futures contracts are useful for speculation and hedgi ng, their standardized delivery dates make them unlikely to correspond to the actual future dates when foreignexchange transactions will occur. Thus, they are generally closed out in a reversing trade. In fact, the commission that buyers and sellers pay to transact in the futures market is a single amount that covers the round-trip transactions of initiating and closing out the position.4. How can the FX futures market be used for price discovery?Answer: To the extent that FX forward prices are an unbiased predictor of future spot exchange rates, the market anticipates whether one currency will appreciate or depreciate versus another. Because FX futures contracts trade in an expiration cycle, different contracts expire at different periodic dates into the future. The pattern of the prices of these cont racts provides information as to the market’s current belief about the relative future value of one currency versus another at the scheduled expiration dates of the contracts. One will generally see a steadily appreciating or depreciating pattern; however, it may be mixed at times. Thus, the futures market is useful for price discovery, i.e., obtaining the market’s forecast of the spot exchange rate at different future dates.5. What is the major difference in the obligation of one with a long position in a futures (or forward) contract in comparison to an options contract?Answer: A futures (or forward) contract is a vehicle for buying or selling a stated amount of foreign exchange at a stated price per unit at a specified time in the future. If the long holds the contract to the delivery date, he pays the effective contractual futures (or forward) price, regardless of whether it is an advantageous price in comparison to the spot price at the delivery date. By contrast, an option is a contract giving the long the right to buy or sell a given quantity of an asset at a specified price at some time in the future, but not enforcing any obligation on him if the spot price is more favorable than the exercise price. Because the option owner does not have to exercise the option if it is to his disadvantage, the option has a price, or premium, whereas no price is paid at inception to enter into a futures (or forward) contract.6. What is meant by the terminology that an option is in-, at-, or out-of-the-money?Answer: A call (put) option with S t > E (E > S t) is referred to as trading in-the-money. If S t E the option is trading at-the-money. If S t< E (E < S t) the call (put) option is trading out-of-the-money.7. List the arguments (variables) of which an FX call or put option model price is a function. How does the call and put premium change with respect to a change in the arguments?Answer: Both call and put options are functions of only six variables: S t, E, r i, r$, T andσ.When all else remains the same, the price of a European FX call (put) option will increase:1. the larger (smaller) is S,2. the smaller (larger) is E,3. the smaller (larger) is r i,4. the larger (smaller) is r$,5. the larger (smaller) r$ is relative to r i, and6. the greater is σ.When r$ and r i are not too much different in size, a European FX call and put will increase in price when the option term-to-maturity increases. However, when r$ is very much larger than r i, a European FX call will increase in price, but the put premium will decrease, when the option term-to-maturity increases. The opposite is true when r i is very much greater than r$. For American FX options the analysis is less complicated. Since a longer term American option can be exercised on any date that a shorter term option can be exercised, or a some later date, it follows that the all else remaining the same, the longer term American option will sell at a price at least as large as the shorter term option.PROBLEMS1. Assume today’s settlement price on a CME EUR futures contract is $1.3140/EUR. You have a short position in one contract. Your performance bond account currently has a balance of $1,700. The next three days’ settlement prices are $1.3126, $1.3133, and $1.3049. Calculate the chan ges in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day.Solution: $1,700 + [($1.3140 - $1.3126) + ($1.3126 - $1.3133)+ ($1.3133 - $1.3049)] x EUR125,000 = $2,837.50,where EUR125,000 is the contractual size of one EUR contract.2. Do problem 1 again assuming you have a long position in the futures contract.Solution: $1,700 + [($1.3126 - $1.3140) + ($1.3133 - $1.3126) + ($1.3049 - $1.3133)] x EUR125,000 = $562.50,where EUR125,000 is the contractual size of one EUR contract.With only $562.50 in your performance bond account, you would experience a margin call requesting that additional funds be added to your performance bond account to bring the balance back up to the initial performance bond level.3. Using the quotations in Exhibit 7.3, calculate the face value of the open interest in the June 2005 Swiss franc futures contract.Solution: 2,101 contracts x SF125,000 = SF262,625,000.where SF125,000 is the contractual size of one SF contract.4. Using the quotations in Exhibit 7.3, note that the June 2005 Mexican peso futures contract has a price of $0.08845. You believe the spot price in June will be $0.09500. What speculative position would you enter into to attempt to profit from your beliefs? Calculate your anticipated profits, assuming you take a position in three contracts. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes?Solution: If you expect the Mexican peso to rise from $0.08845 to $0.09500, you would take a long position in futures since the futures price of $0.08845 is less than your expected spot price.Your anticipated profit from a long position in three contracts is: 3 x ($0.09500 - $0.08845) x MP500,000 = $9,825.00, where MP500,000 is the contractual size of one MP contract.If the futures price is an unbiased predictor of the expected spot price, the expected spot price is the futures price of $0.08845/MP. If this spot price materializes, you will not have any profits or losses from your short position in three futures contracts: 3 x ($0.08845 - $0.08845) x MP500,000 = 0.5. Do problem 4 again assuming you believe the June 2005 spot price will be $0.08500.Solution: If you expect the Mexican peso to depreciate from $0.08845 to $0.07500, you would take a short position in futures since the futures price of $0.08845 is greater than your expected spot price.Your anticipated profit from a short position in three contracts is: 3 x ($0.08845 - $0.07500) x MP500,000 = $20,175.00.If the futures price is an unbiased predictor of the future spot price and this price materializes, you will not profit or lose from your long futures position.6. George Johnson is considering a possible six-month $100 million LIBOR-based, floating-rate bank loan to fund a project at terms shown in the table below. Johnson fears a possible rise in the LIBOR rate by December and wants to use the December Eurodollar futures contract to hedge this risk. The contract expires December 20, 1999, has a US$ 1 million contract size, and a discount yield of7.3 percent.Johnson will ignore the cash flow implications of marking to market, initial margin requirements, and any timing mismatch between exchange-traded futures contract cash flows and the interest payments due in March.Loan TermsSeptember 20, 1999 December 20, 1999 March 20, 2000 ∙Borrow $100 million at ∙Pay interest for first three ∙Pay back principal September 20 LIBOR + 200 months plus interestbasis points (bps) ∙Roll loan over at∙September 20 LIBOR = 7% December 20 LIBOR +200 bpsLoan First loan payment (9%) Second paymentinitiated and futures contract expires and principal↓↓↓∙∙9/20/99 12/20/99 3/20/00a. Formulate Johnson’s September 20 floating-to-fixed-rate strategy using the Eurodollar future contracts discussed in the text above. Show that this strategy would result in a fixed-rate loan, assuming an increase in the LIBOR rate to 7.8 percent by December 20, which remains at 7.8 percent through March 20. Show all calculations.Johnson is considering a 12-month loan as an alternative. This approach will result in two additional uncertain cash flows, as follows:Loan First Second Third Fourth payment initiated payment (9%) payment payment and principal↓↓↓↓↓∙∙∙∙9/20/99 12/20/99 3/20/00 6/20/00 9/20/00b. Describe the strip hedge that Johnson could use and explain how it hedges the 12-month loan (specify number of contracts). No calculations are needed.CFA Guideline Answera. The basis point value (BPV) of a Eurodollar futures contract can be found by substituting the contract specifications into the following money market relationship:BPV FUT = Change in Value = (face value) x (days to maturity / 360) x (change in yield)= ($1 million) x (90 / 360) x (.0001)= $25The number of contract, N, can be found by:N = (BPV spot) / (BPV futures)= ($2,500) / ($25)= 100ORN = (value of spot position) / (face value of each futures contract)= ($100 million) / ($1 million)= 100ORN = (value of spot position) / (value of futures position)= ($100,000,000) / ($981,750)where value of futures position = $1,000,000 x [1 – (0.073 / 4)]102 contractsTherefore on September 20, Johnson would sell 100 (or 102) December Eurodollar futures contracts at the 7.3 percent yield. The implied LIBOR rate in December is 7.3 percent as indicated by the December Eurofutures discount yield of 7.3 percent. Thus a borrowing rate of 9.3 percent (7.3 percent + 200 basis points) can be locked in if the hedge is correctly implemented.A rise in the rate to 7.8 percent represents a 50 basis point (bp) increase over the implied LIBOR rate. For a 50 basis point increase in LIBOR, the cash flow on the short futures position is:= ($25 per basis point per contract) x 50 bp x 100 contracts= $125,000.However, the cash flow on the floating rate liability is:= -0.098 x ($100,000,000 / 4)= - $2,450,000.Combining the cash flow from the hedge with the cash flow from the loan results in a net outflow of $2,325,000, which translates into an annual rate of 9.3 percent:= ($2,325,000 x 4) / $100,000,000 = 0.093This is precisely the implied borrowing rate that Johnson locked in on September 20. Regardless of the LIBOR rate on December 20, the net cash outflow will be $2,325,000, which translates into an annualized rate of 9.3 percent. Consequently, the floating rate liability has been converted to a fixed rate liability in the sense that the interest rate uncertainty associated with the March 20 payment (using the December 20 contract) has been removed as of September 20.b. In a strip hedge, Johnson would sell 100 December futures (for the March payment), 100 March futures (for the June payment), and 100 June futures (for the September payment). The objective is to hedge each interest rate payment separately using the appropriate number of contracts. The problem is the same as in Part A except here three cash flows are subject to rising rates and a strip of futures is used tohedge this interest rate risk. This problem is simplified somewhat because the cash flow mismatch between the futures and the loan payment is ignored. Therefore, in order to hedge each cash flow, Johnson simply sells 100 contracts for each payment. The strip hedge transforms the floating rate loan into a strip of fixed rate payments. As was done in Part A, the fixed rates are found by adding 200 basis points to the implied forward LIBOR rate indicated by the discount yield of the three different Eurodollar futures contracts. The fixed payments will be equal when the LIBOR term structure is flat for the first year.7. Jacob Bower has a liability that:∙has a principal balance of $100 million on June 30, 1998,∙accrues interest quarterly starting on June 30, 1998,∙pays interest quarterly,∙has a one-year term to maturity, and∙calculates interest due based on 90-day LIBOR (the London Interbank OfferedRate).Bower wishes to hedge his remaining interest payments against changes in interest rates.Bower has correctly calculated that he needs to sell (short) 300 Eurodollar futures contracts to accomplish the hedge. He is considering the alternative hedging strategies outlined in the following table.Initial Position (6/30/98) in90-Day LIBOR Eurodollar ContractsStrategy A Strategy BContract Month (contracts) (contracts)September 1998 300 100December 1998 0 100March 1999 0 100a. Explain why strategy B is a more effective hedge than strategy A when the yield curveundergoes an instantaneous nonparallel shift.b. Discuss an interest rate scenario in which strategy A would be superior to strategy B.CFA Guideline Answera. Strategy B’s SuperiorityStrategy B is a strip hedge that is constructed by selling (shorting) 100 futures contracts maturing in each of the next three quarters. With the strip hedge in place, each quarter of the coming year is hedged against shifts in interest rates for that quarter. The reason Strategy B will be a more effective hedge than Strategy A for Jacob Bower is that Strategy B is likely to work well whether a parallel shift or a nonparallel shift occurs over the one-year term of Bower’s liability. That is, regardless of what happens to the term structure, Strategy B structures the futures hedge so that the rates reflected by the Eurodollar futures cash price match the applicable rates for the underlying liability-the 90day LIBOR-based rate on Bower’s liability. The same is not true for Strategy A. Because Jacob Bower’s liability carries a floating interest rate that resets quarterly, he needs a strategy that provides a series of three-month hedges. Strategy A will need to be restructured when the three-month September contract expires. In particular, if the yield curve twists upward (futures yields rise more for distant expirations than for near expirations), Strategy A will produce inferior hedge results.b. Scenario in Which Strategy A is SuperiorStrategy A is a stack hedge strategy that initially involves selling (shorting) 300 September contracts. Strategy A is rarely better than Strategy B as a hedging or risk-reduction strategy. Only from the perspective of favorable cash flows is Strategy A better than Strategy B. Such cash flows occur only in certain interest rate scenarios. For example Strategy A will work as well as Strategy B for Bower’s liability if interest rates (instantaneously) change in parallel fashion. Another interest rate scenario where Strategy A outperforms Strategy B is one in which the yield curve rises but with a twist so that futures yields rise more for near expirations than for distant expirations. Upon expiration of the September contract, Bower will have to roll out his hedge by selling 200 December contracts to hedge the remaining interest payments. This action will have the effect that the cash flow from Strategy A will be larger than the cash flow from Strategy B because the appreciation on the 300 short September futures contracts will be larger than the cumulative appreciation in the 300 contracts shorted in Strategy B (i.e., 100 September, 100 December, and 100 March). Consequently, the cash flow from Strategy A will more than offset the increase in the interest payment on the liability, whereas the cash flow from Strategy B will exactly offset the increase in the interest payment on the liability.8. Use the quotations in Exhibit 7.7 to calculate the intrinsic value and the time value of the 97 September Japanese yen American call and put options.Solution: Premium - Intrinsic Value = Time Value97 Sep Call 2.08 - Max[95.80 – 97.00 = - 1.20, 0] = 2.08 cents per 100 yen97 Sep Put 2.47 - Max[97.00 – 95.80 = 1.20, 0] = 1.27 cents per 100 yen9. Assume spot Swiss franc is $0.7000 and the six-month forward rate is $0.6950. What is the minimum price that a six-month American call option with a striking price of $0.6800 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3 ½ percent.Solution:Note to Instructor: A complete solution to this problem relies on the boundary expressions presented in footnote 3 of the text of Chapter 7.C a≥Max[(70 - 68), (69.50 - 68)/(1.0175), 0]≥Max[ 2, 1.47, 0] = 2 cents10. Do problem 9 again assuming an American put option instead of a call option.Solution: P a≥Max[(68 - 70), (68 - 69.50)/(1.0175), 0]≥Max[ -2, -1.47, 0] = 0 cents11. Use the European option-pricing models developed in the chapter to value the call of problem 9 and the put of problem 10. Assume the annualized volatility of the Swiss franc is 14.2 percent. This problem can be solved using the FXOPM.xls spreadsheet.Solution:d1 = [ln(69.50/68) + .5(.142)2(.50)]/(.142)√.50 = .2675d2 = d1 - .142√.50 = .2765 - .1004 = .1671N(d1) = .6055N(d2) = .5664N(-d1) = .3945N(-d2) = .4336C e = [69.50(.6055) - 68(.5664)]e-(.035)(.50) = 3.51 centsP e = [68(.4336) - 69.50(.3945)]e-(.035)(.50) = 2.03 cents12. Use the binomial option-pricing model developed in the chapter to value the call of problem 9.The volatility of the Swiss franc is 14.2 percent.Solution: The spot rate at T will be either 77.39¢ = 70.00¢(1.1056) or 63.32¢ = 70.00¢(.9045), where u = e.142 .50= 1.1056 and d = 1/u= .9045. At the exercise price of E= 68, the option will only be exercised at time T if the Swiss franc appreciates; its exercise value would be C uT= 9.39¢ = 77.39¢ - 68. If the Swiss franc depreciates it would not be rational to exercise the option; its value would be C dT = 0.The hedge ratio is h = (9.39 – 0)/(77.39 – 63.32) = .6674.Thus, the call premium is:C0= Max{[69.50(.6674) – 68((70/68)(.6674 – 1) +1)]/(1.0175), 70 – 68}= Max[1.64, 2] = 2 cents per SF.MINI CASE: THE OPTIONS SPECULATORA speculator is considering the purchase of five three-month Japanese yen call options with a striking price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 95.71 cents. The speculator believes the yen will appreciate to $1.00 per 100 yen over the next three months. As the speculator’s assistant, you have been asked to prepare the following:1. Graph the call option cash flow schedule.2. Determine the speculator’s profit if the yen appreciates to $1.00/100 yen.3. Determine the speculator’s profit if the yen only appreciates to the forward rate.4. Determine the future spot price at which the speculator will only break even.Suggested Solution to the Options Speculator:1.-2. (5 x ¥6,250,000) x [(100 - 96) - 1.35]/10000 = $8,281.25.3. Since the option expires out-of-the-money, the speculator will let the option expire worthless. He will only lose the option premium.4. S T = E + C = 96 + 1.35 = 97.35 cents per 100 yen.。
国际财务管理(英文)_PPT_ch03
Foreign Exchange Quotations
Ask rate Bid rate Bid / ask spread Ask rate
8
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
2. Indirect quotation represents the number of units of a foreign currency per dollar
Example: €0.97 per Dollar
3. Cross Exchange Rates: exchange rate between two nondollar currencies.
3
© 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
国际财务管理(英文版)课后习题答案2
CHAPTER 1 GLOBALIZATION AND THE MULTINATIONAL FIRMSUGGESTED ANSWERS TO END-OF-CHAPTER QUESTIONSQUESTIONS1. Why is it important to study international financial management？Answer：We are now living in a world where all the major economic functions, i。
e., consumption, production，and investment, are highly globalized. It is thus essential for financial managers to fully understand vital international dimensions of financial management. This global shift is in marked contrast to a situation that existed when the authors of this book were learning finance some twenty years ago. At that time，most professors customarily (and safely, to some extent）ignored international aspects of finance。
This mode of operation has become untenable since then.2. How is international financial management different from domestic financial management？Answer: There are three major dimensions that set apart international finance from domestic finance. They are:1。
国际财务管理(英文版) 第11版 马杜拉 答案 Chapter 5
Chapter 5Currency Derivatives Lecture OutlineForward MarketHow MNCs Can Use Forward ContractsNon-Deliverable Forward ContractsCurrency Futures MarketContract SpecificationsFuturesTradingComparison of Currency Futures and Forward ContractsPricing Currency FuturesCredit Risk of Currency Futures ContractsSpeculation with Currency FuturesHow Firms Use Currency FuturesClosing Out a Futures PositionTransaction Costs of Currency FuturesCurrency Call OptionsFactors Affecting Call Option PremiumsHow Firms Use Currency Call OptionsSpeculating with Currency Call OptionsCurrency Put OptionsFactors Affecting Currency Put Option PremiumsHedging with Currency Put OptionsSpeculating with Currency Put OptionsContingency Graphs for Currency Options Conditional Currency OptionsEuropean Currency OptionsChapter ThemeThis chapter provides an overview of currency derivatives, which are sometimes referred to as “speculative.” Yet, firms are increasing their use of these instruments for hedging. The chapter does give speculation some attention, since this is a good way to illustrate the use of a particular instrument based on certain expectations. However, the key is that students have an understanding why firms would consider using these instruments and under what conditions they would use them.Topics to Stimulate Class Discussion1. Why would a firm ever consider futures contracts instead of forward contracts?2. What advantage do currency options offer that are not available with futures or forwardcontracts?3. What are some disadvantages of currency option contracts?4. Why do currency futures prices change over time?5. Why do currency options prices change over time?6. Set up several scenarios, and for each scenario, ask students to determine whether it would bebetter for the firm to purchase (or sell) forward contracts, futures contracts, call option contracts, or put options contracts.Critical debate:HedgingProposition: MNC’s should not protect against currency changes. Investors take into account currency risks and the diversification benefits from investing in companies that conduct international business. But if these companies are going to protect themselves against one of the main sources of diversification, namely currency changes, they are in effect denying investors the opportunity to benefit from such diversification in order to protect their own positions as directors.Opposing view: Companies specialize in certain activities that generally do not include currency speculation. Derivatives enable such companies to specialize in more clearly defined risks. The protection is in any case only short term, no protection is being offered for long term changes in the value of a currency. Derivatives simply avoid distortion to profits caused by unusual changes to currency values. Such currency shocks could lead to abnormal share price movements that might adversely affect individual shareholders who have to sell for personal reasons.With whom do you agree? How should the investment community view business risk?Should shareholders be more aware of the currency risk policy of the company? Are directors protecting their own positions at the expense of the shareholder? Offer your own opinion on this issue.ANSWER: The mian ppoint is trhat the company should heve a clearly defined foreign exchange rate policy. Annual reports states clearly the general poicy of companies. Often that they do not hedge translation risk as in this example from Renault 2004Renault does not generally hedge its future operating cash flows inforeign currencies. The operating margin is therefore subject in the futureto changes caused by exchange rate fluctuations. In this way, Renaultaverages out any impacts over a long period, while not assuming the risksinherent in forward currency hedging.Often an extimate of the impact of a change in the exchange rate on operation profits will also be given. For example from the same report:How shareholder probably has little say over such a detailed policy, but investing in Renault does make it clear as to how earnings if not share price reacts to the exchange rate. Later in the text itis shown that share prices react predominantly in relation to the home country share index, so the idea that one can buy exposure to foreign currencies in this way is a bit of a myth.Answers to End of Chapter Questions1. Forward versus Futures Contracts. Compare and contrast forward and futures contracts.ANSWER: Because currency futures contracts are standardized into small amounts, they can be valuable for the speculator or small firm (a commercial bank’s forward contracts are more common for larger amounts). However, the standardized format of futures forces limited maturities and amounts.2. Using Currency Futures.a. How can currency futures be used by corporations?ANSWER: U.S. corporations that desire to lock in a price at which they can sell a foreign currency would sell currency futures. U.S. corporations that desire to lock in a price at which they can purchase a foreign currency would purchase currency futures.b. How can currency futures be used by speculators?ANSWER: Speculators who expect a currency to appreciate could purchase currency futures contracts for that currency. Speculators who expect a currency to depreciate could sell currency futures contracts for that currency.3. Currency Options. Differentiate between a currency call option and a currency put option.ANSWER: A currency call option provides the right to purchase a specified currency at a specified price within a specified period of time. A currency put option provides the right to sell a specified currency for a specified price within a specified period of time.4. Forward Premium. Compute the forward discount or premium for the Mexican peso whose90-day forward rate is £0.05 and spot rate is £0.051. State whether your answer is a discount or premium.ANSWER: (F - S) / S= (0.05 – 0.051)/0.051 x 360/90 = -.078 or -7.8% a discount therefore5. Effects of a Forward Contract. How can a forward contract backfire?ANSWER: If the spot rate of the foreign currency at the time of the transaction is worth less than the forward rate that was negotiated, or is worth more than the forward rate that was negotiated, the forward contract has backfired.6. Hedging With Currency Options. When would a U.S. firm consider purchasing a calloption on euros for hedging? When would a U.S. firm consider purchasing a put option on euros for hedging?ANSWER: A call option can hedge a firm’s future payables denominated in euros. It effectively locks in the maximum price to be paid for euros.A put option on euros can hedge a U.S. firm’s future receivables denominated in euros. Iteffectively locks in the minimum price at which it can exchange euros received.7. Speculating With Currency Options. When should a speculator purchase a call option onAustralian dollars? When should a speculator purchase a put option on Australian dollars?ANSWER: Speculators should purchase a call option on Australian dollars if they expect the Australian dollar value to appreciate substantially over the period specified by the option contract.Speculators should purchase a put option on Australian dollars if they expect the Australian dollarvalue to depreciate substantially over the period specified by the option contract.8.Currency Call Option Premiums. List the factors that affect currency call option premiumsand briefly explain the relationship that exists for each. Do you think an at-the-money call option in euros has a higher or lower premium than an at-the-money call option on dollars (assuming the expiration date and the total dollar value represented by each option are the same for both options)?ANSWER: These factors are listed below:•The higher the existing spot rate relative to the strike price, the greater is the call option value, other things equal.•The longer the period prior to the expiration date, the greater is the call option value, other things equal.•The greater the variability of the currency, the greater is the call option value, other things equal.The at-the-money call option in euros should have a lower premium because the euro should have less volatility than the dollar.9. Currency Put Option Premiums. List the factors that affect currency put options and brieflyexplain the relationship that exists for each.ANSWER: These factors are listed below:•The lower the existing spot rate relative to the strike price, the greater is the put option value, other things equal.•The longer the period prior to the expiration date, the greater is the put option value, other things equal.•The greater the variability of the currency, the greater is the put option value, other things equal.10. Speculating with Currency Call Options. Randy Rudecki purchased a call option on Britishpounds for 0.02 euros per unit. The strike price was 1.45euros, and the spot rate at the time the option was exercised was 1.46 euros. Assume there are 31,250 units in a British pound option. What was Randy’s net profit on this option?ANSWER:Profit per unit on exercising the option = 0.01 eurosPremium paid per unit = 0.02 eurosNet profit per unit = –0.01 eurosNet profit per option = 31,250 units × (–0.01 euros) = –312.50 euros11. Speculating with Currency Put Options. Alice Duever purchased a put option on dollarsfor £0.04 per unit. The strike price was £0.55, and the spot rate at the time the dollar option was exercised was £0.63. Assume there are 50,000 units in a US dollar option. What was Alice’s net profit on the option?ANSWER:Profit per unit on exercising the option = £0.00 option not exercisedPremium paid per unit = £0.04Net profit per unit = - £0.04Net profit for one option = 31,250 units × $.17 = -£1,25012. Selling Currency Call Options. Mike Suerth sold a call option on Canadian dollars for£0.01 per unit. The strike price was £0.42, and the spot rate at the time the option was exercised was £0.46. Assume Mike did not obtain Canadian dollars until the option was exercised. Also assume that there are 50,000 units in a Canadian dollar option. What was Mike’s net profit on the call option?ANSWER:Firstly, the call option will be exercisedPremium received per unit = £0.01Amount per unit received from selling C$ at strike = £0.42Amount per unit paid when purchasing C$ = £0.46Net profit per unit = -£0.03Net Profit = 50,000 units × (–£0.03) = –£1,50013. Selling Currency Put Options. Brian Tull sold a put option on Canadian dollars for £0.02per unit. The strike price was £0.42, and the spot rate at the time the option was exercised was £0.40. Assume Brian immediately sold off the Canadian dollars received when the option was exercised. Also assume that there are 50,000 units in a Canadian dollar option. What was Brian’s net profit on the put option?ANSWER:Firstly, the put option will be exercisedPremium received per unit = £0.02Amount per unit received from selling C$ at spot = £0.40Amount per unit paid for C$ = £0.42Net profit per unit = £0.0014. Forward versus Currency Option Contracts. What are the advantages and disadvantagesto an MNC that uses currency options on euros rather than a forward contract on euros to hedge its exposure in euros? Explain why an MNC use forward contracts to hedge committed transactions and use currency options to hedge contracts that are anticipated but not committed. Why might forward contracts be advantageous for committed transactions, and currency options be advantageous for anticipated transactions?ANSWER: A currency option on euros allows more flexibility since it does not commit one to purchase or sell euros (as is the case with a euro futures or forward contract). Yet, it does allow the option holder to purchase or sell euros at a locked-in price.The disadvantage of a euro option is that the option itself is not free. One must pay a premium for the call option, which is above and beyond the exercise price specified in the contract at which the euro could be purchased.An MNC may use forward contracts to hedge committed transactions because it would be cheaper to use a forward contract (a premium would be paid on an option contract that has an exercise price equal to the forward rate). The MNC may use currency options contracts to hedge anticipated transactions because it has more flexibility to let the contract go unexercised if the transaction does not occur.15. Speculating with Currency Futures. Assume that the euro’s spot rate has moved in cyclesover time. How might you try to use futures contracts on euros to capitalize on this tendency? How could you determine whether such a strategy would have been profitable in previous periods?ANSWER: Use recent movements in the euro to forecast future movements. If the euro has been strengthening, purchase futures on euros. If the euro has been weakening, sell futures on euros.A strategy’s profitability can be determined by comparing the amount paid for each contractto the amount for which each contract was sold.We need to note that currencies do not move in patterns, it would be noticed by other traders!16. Hedging with Currency Derivatives. Assume that the transactions listed in the first columnof the following table are anticipated by UK firms that have no other foreign transactions.Place an “X” in the table wherever you see possible ways to hedge each of the transactions.a. George ltdplans to purchase Japanese goods denominated in yen.b. Harvard ltd sold goods to Japan, denominated in yen.c. Yale plc has a subsidiary in Australia that will be remitting funds to the U.S. parent.d. Brown ltd needs to pay off existing loans that are denominated in Canadian dollars.e.Princeton ltd may purchase a company in Japan in the near future (but the deal may notgo through).ANSWER:Forward Contract Futures Contract Options ContractForward Forward Buy Sell Purchase Purchase Purchase Sale Futures Futures Calls Putsa.X X Xb. X X Xc. X X Xd. X X Xe. X17. Price Movements of Currency Futures. Assume that on November 1, the spot rate of the British pound was £0.63 and the price on a December futures contract was £0.64. Assume that the pound depreciated during November so that by November 30 it was worth £0.60.a. What do you think happened to the futures price over the month of November? Why?ANSWER: The December futures price would have decreased, because it reflects expectations of the future spot rate as of the settlement date. If the existing spot rate is £0.60, the spot rate expected on the December futures settlement date is likely to be near £0.60 as well. As you get closer to the maturity date so the difference between buying at spot and buying using a futures decreases, so as the law of one price dictates, the price should be nearly the same for nearly the same service.b. If you had known that this would occur, would you have purchased or sold a Decemberfutures contract in pounds on November 1? Explain.ANSWER: You would have sold futures at the existing futures price of £0.64. Then as the spot rate of the pound declined, the futures price would decline and you could close out your futures position by purchasing a futures contract at a lower price. Alternatively, you could wait until the settlement date, purchase the pounds in the spot market at £0.60, and fulfill the futures obligation by delivering pounds at the price of £0.64 per dollar.18. Speculating with Currency Futures. Assume that a March futures contract on Mexicanpesos was available in January for $.09 per unit. Also assume that forward contracts were available for the same settlement date at a price of $.092 per peso. How could speculators capitalize on this situation, assuming zero transaction costs? How would such speculative activity affect the difference between the forward contract price and the futures price?ANSWER: Speculators could purchase peso futures for $.09 per unit, and simultaneously sell pesos forward at $.092 per unit. When the pesos are received (as a result of the futures position) on the settlement date, the speculators would sell the pesos to fulfill their forward contract obligation. This strategy results in a $.002 per unit profit.As many speculators capitalize on the strategy described above, they would place upward pressure on futures prices and downward pressure on forward prices. Thus, the difference between the forward contract price and futures price would be reduced or eliminated.19. Speculating with Currency Call Options. LSU Corp. purchased Canadian dollar calloptions for speculative purposes. If these options are exercised, LSU will immediately sell the Canadian dollars in the spot market. Each option was purchased for a premium of $.03 per unit, with an exercise price of $.75. LSU plans to wait until the expiration date before deciding whether to exercise the options. Of course, LSU will exercise the options at that time only if it is feasible to do so. In the following table, fill in the net profit (or loss) per unit to LSU Corp. based on the listed possible spot rates of the Canadian dollar on the expiration date.ANSWER:Possible Spot Rate Net Profit (Loss) perof Canadian Dollar Unit to LSU Corporationon Expiration Date if Spot Rate Occurs$.76 –$.02.78 .00.80 .02.82 .04.85 .07.87 .0920. Speculating with Currency Put Options. Auburn ltd has purchased Canadian dollar putoptions for speculative purposes. Each option was purchased for a premium of £0.02 per unit, with an exercise price of £0.48 per unit. Auburn ltd will purchase the Canadian dollars just before it exercises the options (if it is feasible to exercise the options). It plans to wait until the expiration date before deciding whether to exercise the options. In the following table, fill in the net profit (or loss) per unit to Auburn ltd based on the listed possible spot rates of the Canadian dollar on the expiration date.Possible spot rate on Canadian dollar on expiration dateNet profit (loss) perunit to Auburnltd£0.42 0.04£0.44 0.02£0.46 0.00£0.48 -0.02£0.50 -0.02£0.52 -0.0221. Speculating with Currency Call Options. Bama plc has sold dollar call options for speculative purposes. The option premium was £0.04 per unit, and the exercise price was £0.54. Bama will purchase the dollars on the day the options are exercised (if the options are exercised) in order to fulfill its obligation. In the following table, fill in the net profit (or loss) to Bama plc if the listed spot rate exists at the time the purchaser of the call options considers exercising them.Possible spot rate at the time the purchaser of the Call option(Americanstyle) considersexercising themNet profit (loss) perunit to BamaCorp.£0.480.04 £0.500.04 £0.520.04 £0.54 0.04 £0.560.02 £0.580.00 £0.60-0.0222. Speculating with Currency Put Options. Bulldog ltd has sold Australian dollar put optionsat a premium of £0.01 per unit, and an exercise price of £0.42 per unit. It has forecasted the Australian dollar’s lowest level over the period of concern as shown in the following table. Determine the net profit (or loss) per unit to Bulldog ltd if each level occurs and the put options are exercised at that time.Possible value of Australian dollar Net profit (loss) perunit to Bulldogltd if valueoccurs.£0.38 -£0.03£0.39 -£0.02£0.40 -£0.01£0.41 £0.00£0.42 £0.0123. Hedging with Currency Derivatives. A U.S. professional football team plans to play anexhibition game in the United Kingdom next year. Assume that all expenses will be paid by the British government, and that the team will receive a check for 1 million pounds. The team anticipates that the pound will depreciate substantially by the scheduled date of the game. In addition, the National Football League must approve the deal, and approval (or disapproval) will not occur for three months. How can the team hedge its position? What is there to lose by waiting three months to see if the exhibition game is approved before hedging?ANSWER: The team could purchase put options on pounds in order to lock in the amount at which it could convert the 1 million pounds to dollars. The expiration date of the put option should correspond to the date in which the team would receive the 1 million pounds. If the deal is not approved, the team could let the put options expire.If the team waits three months, option prices will have changed by then. If the pound has depreciated over this three-month period, put options with the same exercise price would command higher premiums. Therefore, the team may wish to purchase put options immediately. The team could also consider selling futures contracts on pounds, but it would be obligated to exchange pounds for dollars in the future, even if the deal is not approved. Advanced Questions24. Risk of Currency Futures.Currency futures markets are commonly used as a means ofcapitalizing on shifts in currency values, because the value of a futures contract tends to move in line with the change in the corresponding currency value. Recently, many currencies appreciated against the dollar. Most speculators anticipated that dollars value would continue to decline. However, the Fed intervened in the foreign exchange market by immediately buying dollars with foreign currency, causing an abrupt halt in the decline in the value of the dollar. Participants that had sold dollar futures contracts for a range of other currencies incurred large losses.a. Explain why the central bank’s intervention caused such panic among currency futurestraders with buy positions.ANSWER: Futures prices on pounds rose in tandem with the value of the pound. However, when central banks intervened to support the dollar, the value of the pound declined, and so did values of futures contracts on pounds. So traders with long (buy) positions in these contracts experienced losses because the contract values declined.b. Some traders with buy positions may have responded immediately to the central bank’sintervention by selling futures contracts. Why would some speculators with buy positions leave their positions unchanged or even increase their positions by purchasing more futures contracts in response to the central bank’s intervention?ANSWER: Central bank intervention sometimes has only a temporary effect on exchange rates. Thus, the European currencies could strengthen after a temporary effect caused by central bank intervention. Traders have to predict whether natural market forces will ultimately overwhelm any pressure induced as a result of central bank intervention.25. Currency Straddles. Reska ltd has constructed a long euro straddle. A call option on euroswith an exercise price of £0.61 has a premium of £0.015 per unit. A euro put option has a premium of £0.008 per unit. Some possible euro values at option expiration are shown in the following table. (See Appendix B in this chapter.)a. Complete the worksheet and determine the net profit per unit toValue of Euro at option Expiration£0.50 £0.55 £0.60 £0.65Call -0.015 -0.015 -0.015 0.025Put 0.102 0.052 0.002 -0.008Net 0.087 0.037 -0.013 0.017Reska, ltd for each possible future spot rate.b. Determine the break-even point(s) of the long straddle. What are the break-even points of ashort straddle using these options?ANSWER: the cost is the combined premiums so 0.008 + 0.015 = 0.023, so the difference above and below the strike price of £0.61 must cosver this cost i.e. 0.61 + 0.023 = 0.633 and 0.61 – 0.023 = 0.587 so the breakeven points are £0.633 and £0.587. The short straddle for the same exercise price is the other side, the seller of the call and seller of the put. The breakeven points are the same.26. C urrency Straddles. Refer to the previous question, but assume that the call and putoption premiums are £0.01 per unit and £0.006 per unit, respectively. (See Appendix B in this chapter.)a. Construct a contingency graph for a long euro straddle.b. Construct a contingency graph for a short euro straddle.a.profitLossb.ANSWER:profitLoss27. C urrency Option Contingency Graphs. (See Appendix B in this chapter.) The current spot rate of the Singapore dollar (S$) is £0.34. The following option information is available: ☐ Call option premium on Singapore dollar (S$) = £0.015☐ Put option premium on Singapore dollar (S$) = £0.009☐ Call and put option strike price = £0.36☐ One option contract represents S$70,000.Construct a contingency graph for a short straddle using these options.ANSWER:profitLoss28. Speculating with Currency Straddles. Maggie Hawthorne is a currency speculator. She hasnoticed that recently the dollar has depreciated substantially against the euro. The current exchange rate of the dollar is 0.78 euro. After reading a variety of articles on the subject, she believes that the dollar will continue to fluctuate substantially in the months to come.Although most forecasters believe that the dollar will depreciate against the euro in the near future, Maggie thinks that there is also a good possibility of further appreciation. Currently, a call option on dollars is available with an exercise price of 0.80 euro and a premium of 0.04 euro. A dollar put option with an exercise price of 0.80 euro and a premium of 0.03 euro is also available. (See Appendix B in this chapter.)a. Describe how Maggie could use straddles to speculate on the dollar’s value.b. At option expiration, the value of the dollar is 0.90 euro. What is Maggie’s total profit or lossfrom a long straddle position?c. What is Maggie’s total profit or loss from a long straddle position if the value of the dollar is0.60 euro at option expiration?d. What is Maggie’s total profit or loss from a long straddle position if the value of the dollar atoption expiration is still 0.78 euro?e. Given your answers to the questions above, when is it advantageous for a speculator to engagein a long straddle? When is it advantageous to engage in a short straddle?ANSWERa.Since Maggie believes the dollar will either appreciate or depreciate substantially, shemay consider purchasing a straddle on dollar.b.Per UnitSelling Price of $ 0.90 euro– Purchase price of $ -0.80 euro– Premium paid for call option -0.04 euro– Premium paid for put option -0.03euro= Net profit 0.03 euroc.Per UnitSelling Price of € 0.80 euro– Purchase price of € -0.60 euro– Premium paid for call option -0.04 euro– Premium paid for put option -0.03euro= Net profit 0.17 eurod.Per UnitSelling Price of € 0.80– Purchase price of € 0.78– Premium paid for call option -0.04 euro– Premium paid for put option -0.03euro= Net profit -0.05 euroe. It is advantageous for a speculator to engage in a long straddle if the underlying currency isexpected to fluctuate drastically, in either direction, prior to option expiration. This is because the advantage of benefiting from either an appreciation or depreciation is offset by the cost of two option premiums. It is advantageous for a speculator to engage in a short straddle if the underlying currency is not expected to deviate far from the strike price prior to option expiration. In that case, the speculator would collect both premiums, and the loss associated with either the call or the put option is minimal.。
外汇管理制度英文
外汇管理制度英文IntroductionForeign exchange management system refers to the process and rules governing the buying and selling of foreign currencies. It is an essential component of a country's economic structure and plays a crucial role in managing the balance of trade and international transactions. The foreign exchange market is the largest and most liquid financial market in the world, and the effective management of this system is crucial for a country's economic stability and growth.In this paper, we will discuss the various aspects of foreign exchange management, including its role in the economy, the regulatory framework, and the challenges and opportunities it presents.Role of Foreign Exchange ManagementThe foreign exchange market is a global decentralized or over-the-counter market for the trading of currencies. This market determines the foreign exchange rate, which is the rate at which one currency can be exchanged for another. The foreign exchange market facilitates international trade and investment by allowing companies and individuals to convert one currency into another.The foreign exchange market also plays a crucial role in determining a country's balance of trade and international reserves. A country's balance of trade is the difference between the value of its exports and imports, and it is influenced by the exchange rate. A higher exchange rate makes a country's exports more expensive and imports cheaper, while a lower exchange rate has the opposite effect.The foreign exchange market also affects a country's international reserves, which are held to support a country's currency and to provide confidence in its ability to meet its international payment obligations. A country's international reserves are influenced by the balance of trade, as well as by capital flows, interest rates, and other economic factors.Regulatory FrameworkThe foreign exchange market is a complex and highly regulated market, with rules and regulations governing the conduct of both domestic and international participants. The regulatory framework for foreign exchange management varies from country to country, but generally includes a central bank or monetary authority that is responsible for overseeing the foreign exchange market and implementing relevant policies and regulations. In many countries, the central bank is responsible for maintaining the stability of the exchange rate, as well as for managing international reserves and intervening in the foreign exchange market to influence the exchange rate. Central banks also have the authority tolicense and regulate foreign exchange dealers and to monitor and enforce compliance with foreign exchange regulations.In addition to central banks, there are often other regulatory agencies and bodies involved in foreign exchange management, including government agencies, financial regulators, and international organizations. These entities play a crucial role in ensuring the integrity and stability of the foreign exchange market and in protecting the interests of market participants and the public.Challenges and OpportunitiesThe foreign exchange market presents a number of challenges and opportunities for countries and market participants. One of the main challenges is managing the volatility and uncertainty of the foreign exchange market, which can be influenced by a wide range of factors, including economic indicators, political events, and market sentiment.Managing exchange rate volatility is a key priority for many countries, as rapid and unpredictable movements in the exchange rate can have a significant impact on a country's economy and on the stability of its financial system. Central banks and other regulatory authorities use a variety of tools and techniques to manage exchange rate volatility, including intervention in the foreign exchange market, interest rate adjustments, and capital controls.Another challenge in foreign exchange management is ensuring compliance with regulations and preventing illegal activities such as money laundering, fraud, and market manipulation. Regulators and law enforcement agencies need to have effective surveillance and enforcement mechanisms in place to detect and deter illegal activities in the foreign exchange market.Despite these challenges, the foreign exchange market also presents significant opportunities for countries and market participants. The foreign exchange market provides a vital mechanism for facilitating international trade and investment, and it offers opportunities for companies and individuals to hedge against currency risk and to diversify their investment portfolios.The foreign exchange market also plays a crucial role in promoting financial innovation and technological advancement. The development of electronic trading platforms, algorithmic trading, and other technological innovations has helped to increase market efficiency and liquidity, as well as to expand access to the foreign exchange market for a wider range of participants.ConclusionForeign exchange management is a critical component of a country's economic infrastructure, and it plays a crucial role in facilitating international trade and investment, managing the balance of trade, and maintaining stability in the exchange rate andinternational reserves. Effective foreign exchange management requires a robust regulatory framework, as well as the ability to address the challenges and opportunities presented by the foreign exchange market.As the global economy becomes increasingly interconnected and as technological advancements continue to reshape the financial industry, the foreign exchange market will continue to evolve and present new challenges and opportunities for countries and market participants. It is essential for policymakers, regulators, and market participants to work together to ensure the integrity and stability of the foreign exchange market and to maximize its potential benefits for the global economy.。
MarketforForeignExchange(国际财务管理,英文版)
McGraw-Hill/Irwin 4-2
Copyright © 2001 by The McGraw-Hill Companies, Inc. All righ
Chapter Outline
Function and Structure of the FOREX Market
The Spot Market
FOREX Market Participants
The FOREX market is a two-tiered market:
Interbank Market (Wholesale)
About 700 banks worldwide stand ready to make a market in Foreign exchange.
Chapter Outline
Function and Structure of the FOREX Market
FX Market Participants Correspondent Banking Relationships
The Spot Market The Forward Market
Spot Rate Quotations
The Bid-Ask Spread
Spot FX Trading
Cross Exchange Rate Quotations
Triangular Arbitrage
Spot Foreign Exchange Market Microstructure
The Market for Foreign Exchange
Chapter Objectives:
Chapter Four
4 INTERNATIONAL
英语外汇管理制度
英语外汇管理制度IntroductionForeign exchange management is the process of monitoring and controlling the flow of foreign currency in and out of a country. It is a critical function of a nation's economic and financial stability as it ensures smooth and efficient functioning of the foreign exchange market. The foreign exchange (forex) market is a global decentralized or over-the-counter market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all aspects of buying, selling and exchanging currencies at current or determined prices. In this paper, we will discuss the importance of foreign exchange management, the current challenges in the forex market, and the best practices for a foreign exchange management system.Importance of Foreign Exchange ManagementForeign exchange management plays a critical role in ensuring economic stability and growth. It allows for the smooth flow of international trade, investment, and financial transactions. Here are some key reasons why foreign exchange management is important:1. Ensuring exchange rate stability: Fluctuations in exchange rates can lead to instability in a country's economy. Foreign exchange management helps in maintaining exchange rate stability by monitoring and controlling the flow of foreign currency.2. Facilitating International trade and investment: Foreign exchange management ensures that businesses can engage in international trade and investment without facing excessive currency risks. It provides a mechanism for converting one currency into another, enabling trade and investment to flourish.3. Reserves management: Foreign exchange reserves are an important tool for addressing balance of payment issues, ensuring liquidity in the economy, and maintaining confidence in the currency. Effective foreign exchange management helps in building and managing foreign exchange reserves.4. Managing capital flows: Foreign exchange management helps in managing capital flows, including foreign direct investment, portfolio investment, and external borrowing. It helps in regulating the flow of capital in and out of the country, which is crucial for maintaining economic stability.Challenges in the Forex MarketThe forex market is a complex and highly volatile market, with several challenges that need to be addressed. Some of the key challenges in the forex market include:1. Exchange rate volatility: Exchange rates can fluctuate significantly due to various factors such as economic data releases, political events, and geopolitical tensions. This volatility can lead to uncertainty and risk for businesses and investors.2. Speculative trading: The forex market is also driven by speculative trading, where traders buy and sell currencies based on short-term price movements. This speculative activity can lead to excessive volatility and can impact the stability of exchange rates.3. Regulatory compliance: The forex market is subject to stringent regulatory requirements in many countries. Adhering to these regulations and compliance standards can be challenging for financial institutions and forex brokers.4. Technology and infrastructure: The forex market relies heavily on technology and infrastructure for trading, clearing, and settlement. The market requires robust and high-speed systems to ensure efficient and secure transactions.Best Practices for Foreign Exchange Management SystemTo effectively manage foreign exchange, it is important to implement best practices in the foreign exchange management system. Some of the best practices include:1. Risk management: Implementing a robust risk management framework is critical for managing foreign exchange risk. This includes identifying, measuring, and mitigating currency risks through hedging and other risk management techniques.2. Compliance and regulations: Adhering to regulatory requirements and compliance standards is essential for effective foreign exchange management. It is important to stay updated with the latest regulatory developments and ensure that the foreign exchange management system complies with all relevant regulations.3. Technology infrastructure: Investing in a reliable and efficient technology infrastructure is crucial for the smooth functioning of the foreign exchange management system. This includes trading platforms, risk management systems, and back-office systems to handle clearing and settlement.4. Liquidity management: Effective liquidity management is important for managing foreign exchange reserves and ensuring liquidity in the market. This includes monitoring and managing the flow of foreign currency to maintain adequate reserves.5. Transparency and reporting: Maintaining transparency in foreign exchange transactions and reporting is important for ensuring accountability and oversight. This includes regular reporting on foreign exchange reserves, transactions, and performance.ConclusionForeign exchange management is a critical function for a country's economic stability and growth. It is important to implement best practices in the foreign exchange management system to effectively monitor and control the flow of foreign currency. This includes risk management, compliance with regulations, technology infrastructure, liquidity management, and transparency in reporting. By implementing these best practices, countries andfinancial institutions can effectively manage foreign exchange and ensure stability in the forex market.。
国际金融管理课件：3-The Market for Foreign Exchange
ARS AUD BGN BHD BRL CAD CHF CLP CNY/RMB COP CZK DKK EUR GBP HKD HUF IDR ILS INR JPY KRW
Argentine peso Australian dollar Bulgarian lev Bahraini dinar Brazilian real Canadian dollar Swiss franc Chilean peso Chinese yuan (renminbi) Colombian peso Czech koruna Danish krone euro pound sterling Hong Kong dollar Hungarian forint Indonesian rupiah Israeli new shekel Indian rupee yen Korean won
What are the symbols of these currencies?
Foreign Exchange Rates & Quotations：Spot
A foreign exchange rate is the price of one currency expressed in terms of another currency.
5 top financial centers: United Kingdom (41%), the United States (19%), Singapore (5.7%), Japan (5.6%) and Hong Kong SAR (4.1%)，accounts for 75% global foreign exchange trading in 2013.
A swap transaction involves 2 simultaneous reversed exchange transactions（ spot/forward or forward/forward) of 2 currencies.
国际财务管理知识分析英文版34页PPT
S($/£) = $1.25/£
F360($/£) = i$ = i£ =
$1.20/£ 7.10% 11.56%
10
IRP and Covered Interest Arbitrage
A trader with $1,000 to invest could invest in the U.S., in one year his investment will be worth $1,071 = $1,000(1+ i$) = $1,000(1.071)
hedge your exchange rate risk by selling the future value of the Japanese investment forward. The future value = $100,000(F/S)(1 + i¥)
Since both of these investments have the same risk, they must have the same future value—otherwise an arbitrage would exist.
国际财管ch5_外汇市场-english 课件
1 FX Market Participants 2
Correspondent Banking Relationships
4-3
FX Market Participants
The FX market is a two-tiered market:
47%
nonbank dealers
86%
• Interbank Market (Wholesale)
Dealing with the bank, the customer is always a disadvantage, the bank through the way(“Buy low and sell high”)to earn a profit.
cross rate trading
Bid price means: buy 1 USD pay ?EUR Process: Buy 1 USD need to pay 6.5777 CNY, Get 1 CNY to pay 1/7.1597EUR That is: the purchase price of =6.5777/7.1597=0.9187 ask price means: Sell 1 USD to be able to obtain? EUR Process: Sell 1 USD to get 6.5782CNY, Sell 1 CNY to get 1/7.1584EUR That is: Price = 6.5782/7.1584=0.9189
cross – exchange rate
that’s(USD/CNY) = 6.5528
i.e. us$1 = ¥6.5528
and that S(EUC/CNY) = 7.1461
国际财务管理英语单词表
AActive income 活动收入;主动经营所得指个人或公司通过提供产品或服务而取得的收人。
Adjusted present value(APV)调整现值 指根据现金流风险大小采用不同利率计算企业现金流现值的方法。
Agency market 代理市场指经纪人通过代理人(中介)来接受客户指令并由代理人(中介)完成撮合的市场。
Agency problem 代理问题股东雇用经理人作为其代理人，而经理人事实上会因谋求自己的利益而损害股东的利益。
这样，两者就形成了利益冲突。
对于股权分散的公司，代理问题尤为严重。
All-equity cost of capital 全部权益资本成本;纯权益资本成本指不存在债务情况下公司股票的要求报酬率。
All-in-cost全面成本，总成本指互换交易的总成本，包括利息费用、交易成本和服务费。
American depository receipt(ADR)美国存托凭证指美国的银行所签发的所有权凭证、表示存放在美国的银行的各种外国股份。
美国存托凭证可在美国有组织的交易所或场外市场进行交易。
American option 美式期权指可在期权合约内任何时间进行执行的期权。
Appreciate(浮动汇率制下的)升值按本币衡量时，外币升值意味着外币兑本币汇率的增加。
Arbitrage套利 指同时买入并卖出等量资产或商品的交易行为，其目的是确保获利。
Ask price卖方报价参见offer price.BBalance of payment 国际收支指按复式记账法记录一国的国际交易。
Balance sheet hedge 资产负债表套期保值在通过消除预期净资产与同币种净负债风险敞口不相匹配来降低跨国公司的换算风险。
Bank capital adequacy 银行资本充足率指银行为应对风险资产而作为储备持有的权益资本与其他证券的金额，其目的是降低银行破产的概率。
Bankers' acceptance(B/A)银行承兑一种议付的货币市场工具。
- 1、下载文档前请自行甄别文档内容的完整性，平台不提供额外的编辑、内容补充、找答案等附加服务。
- 2、"仅部分预览"的文档,不可在线预览部分如存在完整性等问题,可反馈申请退款(可完整预览的文档不适用该条件!)。
- 3、如文档侵犯您的权益，请联系客服反馈,我们会尽快为您处理(人工客服工作时间：9:00-18:30)。
Market participants include international banks, their customers, nonbank dealers, FOREX brokers, and central banks.
McGraw-Hill/Irwin
FOREX Market Participants
The FOREX market is a two-tiered market:
Interbank Market (Wholesale)
About 700 banks worldwide stand ready to make a market in Foreign exchange.
Spot Rate Quotations The Bid-Ask Spread Spot FX trading Cross Rates
McGraw-Hill/Irwin
4-8
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
McGraw-Hill/Irwin
4-2
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Chapter Outline
Function and Structure of the FOREX Market
The Spot Market
4-6
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Correspondent Banking Relationships
Large commercial banks maintain demand deposit accounts with one another which facilitates the efficient functioning of the forex market.
•This chapter lays the foundation for muchEoUfNth/ ReESNICK Second Edition
discussion throughout the remainder of the text, thus it deserves your careful attention.
McGraw-Hill/Irwin
4-9
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Spot Rate Quotations
W ednes day, J anuary 8, 1997
U.S. $ equiv.
Currency per U.S. $
Retai l trans ac tions provi de fewer uni ts of forei gn c urrenc y per
Jordan (Dinar)
dol l ar.
Kuwait (Dinar)
Country
U.S. $ equiv.
Wed.
Tues.
Currency per U.S. $ Wed. Tues.
Colombia (Peso)
.0009985 .0009985 1001.50 1001.50
Spain (Peseta)
Czech. Rep (Krouna)
....
....
....
....
Sweden (Krona)
Commercial rate
.03662
.03677 27.307 27.194
Lebanon (Pound) Malaysia (Ringgit) Malta (Lira)
Argentina (Peso)
1.0012
1.0012
.9988
.9988
Mexico (Peso)
Australia (Dollar)
.7805
.7902 1.2812 1.2655
Floating rate
Singapore (Dollar) Slovak Rep. (Koruna)
Chile (Peso)
.002352 .002356 425.25 424.40
South Africa (Rand)
China (Renminbi)
.1201
.1201 8.3272 8.3276
South Korea (Won)
clearinghouse for settling interbank FOREX transactions.
McGraw-Hill/Irwin
4-7
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
The Spot Market
Forward Rate Quotations Long and Short Forward Positions Forward Cross-Exchange Rates Swap Transactions Forward Premium
McGraw-Hill/Irwin
4-4
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights
Russia (Ruble) (a)
30-Day Forward
.7414
.7386 1.3488 1.3539
Saudi Arabia (Riyal)
90-Day Forward 180-Day Forward
.7442 .7479
.7413 .7450
1.3437 1.3370
1.3489 1.3422
Norway (Krone)
Brazil (Real)
.9607
.9615 1.0409 1.0401
Pakistan (Rupee)
Britain (Pound)
1.6880
1.6946
.5924
.5901
Peru (new Sol)
30-Day Forward 90-Day Forward
1.6869 1.6843
Spot Rate Quotations
Direct quotation
the U.S. dollar equivalent e.g. “a Japanese Yen is worth about a penny”
Indirect Quotation
the price of a U.S. dollar in the foreign currency e.g. “you get 100 yen to the dollar”.
Austria (Schilling)
.09043
.09101 11.058 10.988
Netherland (Guilder)
Bahrain (Dinar)
2.6525
2.6525
.3770
.3770
New Zealand (Dollar)
Belgium (Franc)
.03080
.03105 32.470 32.205
Spot Rate Quotations
The Bid-Ask Spread
Spot FX Trading
Cross Exchange Rate Quotations
Triangular Arbitrage
Spot Foreign Exchange Market Microstructure
1.6935 1.6910
.5928 .5937
.5905 .5914
Philippines (Peso) Poland (Zloty)
180-Day Forward
1.6802
1.6867
.5952 .5929
Portugal (Escudo)
Canada (Dollar)
.7399
.7370 1.3516 1.3568
International commercial banks communicate with one another with:
SWIFT: The Society for Worldwide Interbank Financial Telecommunications.
CHIPS: Clearing House Interbank Payments System ECHO Exchange Clearing House Limited, the first global
The Forward Market
McGraw-Hi © 2001 by The McGraw-Hill Companies, Inc. All rights
Chapter Outline
Function and Structure of the FOREX Market The Spot Market The Forward Market
The Function and Structure of the FOREX Market
FOREX Market Participants Correspondent Banking Relationships
McGraw-Hill/Irwin
4-5
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights