©SIRJOEL EXAM SOLUTIONS
10/11/2024 1:41 PM
International Finance Final Questions 100%
Solved.
A country experiencing a significant balance-of-payments surplus would be likely to -
answer✔expand imports, offering marketing opportunities for foreign enterprises, and encourage
imposing foreign exchange restrictions.
When individual investors become aware of overseas investment opportunities and are willing to
diversify their portfolios internationally, - answer✔they benefit from an expanded opportunity
set.
A dealer in pounds who thinks that the exchange rate is about to increase in volatility -
answer✔may want to widen his bid-ask spread.
An example(s) of a political risk is - answer✔both the expropriation of assets and adverse
changes in tax rules are correct.
Generally speaking, liberalization of financial markets when combined with a weak,
underdeveloped domestic financial system tends to - answer✔create an environment susceptible
to currency and financial crises.
, ©SIRJOEL EXAM SOLUTIONS
10/11/2024 1:41 PM
If the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid and
ask prices are - answer✔€0.6623 and €0.6667.
The theory of comparative advantage - answer✔claims that economic well-being is enhanced if
each country's citizens produce that which they have a comparative advantage in producing
relative to the citizens of other countries, and then trade production.
The forward price - answer✔all of the options
Most governments at least try to make it difficult for people to cross their borders illegally. This
barrier to the free movement of labor is an example of - answer✔a market imperfection.
Privatization refers to the process of - answer✔a country divesting itself of the ownership and
operation of a business venture by turning it over to the free market system.
If the United States imports more than it exports, then - answer✔one can infer that the U.S.
dollar would be under pressure to depreciate against other currencies.
the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris
paribus.
Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes:
Swiss franc/dollar = SFr1.6043/$
, ©SIRJOEL EXAM SOLUTIONS
10/11/2024 1:41 PM
Australian dollar/U.S. dollar = A$1.8296/$
Australian dollar/Swiss franc = A$1.1494/SFr
Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these
quotes? If there is an arbitrage opportunity, what steps would he take to make an arbitrage profit,
and how much would he profit if he has $1,000,000 available for this purpose? - answer✔Sell
dollars to get Swiss francs: Sell $1,000,000 to get $1,000,000 × SFr1.6043/$ = SFr1,604,300.
ii. Sell Swiss francs to buy Australian dollars: Sell SFr1,604,300 to buy SFr1,604,300 ×
A$1.1494/SFr = A$1,843,982.42.
iii. Sell Australian dollars for dollars: Sell A$1,843,982.42 for A$1,843,982.42/A$1.8296/$ =
$1,007,860.96.
Thus, your arbitrage profit is $1,007,860.96 − $1,000,000 = $7,860.96.
Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year
later, the stock rises to £60. You are happy with your 20 percent return on the stock, but when
you sell the stock and exchange your £60 for dollars, you only get $45 since the pound has fallen
to £1 = $0.75. This loss of value is an example of - answer✔exchange rate risk.
Country. U.S. $ equiv. Currency per U.S. $
Tuesday Monday Tuesday. Monday
, ©SIRJOEL EXAM SOLUTIONS
10/11/2024 1:41 PM
U.K.(Pound)£62,500. 1.6000. 1.6100. 0.6250. 0.6211
1 Month Forward. 1.6100. 1.6300. 0.6211. 0.6173
3 Months Forward. 1.6300. 1.6600. 0.6173. 0.6024
6 Months Forward. 1.6600. 1.7200. 0.6024. 0.581412
12 Months Forward. 1.7200. 1.8000. 0.5814. 0.5556
Using the table shown, what is the most current spot exchange rate shown for British pounds?
Use a direct quote from a U.S. perspective. - answer✔$1.60 = £1.00
The main cost of European monetary union is - answer✔the loss of national monetary and
exchange rate policy independence.
The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on
your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.52/€
in three months. Assume that you would like to buy or sell €1,000,000. What actions do you
need to take to speculate in the forward market? - answer✔Take a long position in a forward
contract on €1,000,000 at $1.50/€.
The gold standard still has ardent supporters who believe that it provides - answer✔an effective
hedge against price inflation.
10/11/2024 1:41 PM
International Finance Final Questions 100%
Solved.
A country experiencing a significant balance-of-payments surplus would be likely to -
answer✔expand imports, offering marketing opportunities for foreign enterprises, and encourage
imposing foreign exchange restrictions.
When individual investors become aware of overseas investment opportunities and are willing to
diversify their portfolios internationally, - answer✔they benefit from an expanded opportunity
set.
A dealer in pounds who thinks that the exchange rate is about to increase in volatility -
answer✔may want to widen his bid-ask spread.
An example(s) of a political risk is - answer✔both the expropriation of assets and adverse
changes in tax rules are correct.
Generally speaking, liberalization of financial markets when combined with a weak,
underdeveloped domestic financial system tends to - answer✔create an environment susceptible
to currency and financial crises.
, ©SIRJOEL EXAM SOLUTIONS
10/11/2024 1:41 PM
If the $/€ bid and ask prices are $1.50/€ and $1.51/€, respectively, the corresponding €/$ bid and
ask prices are - answer✔€0.6623 and €0.6667.
The theory of comparative advantage - answer✔claims that economic well-being is enhanced if
each country's citizens produce that which they have a comparative advantage in producing
relative to the citizens of other countries, and then trade production.
The forward price - answer✔all of the options
Most governments at least try to make it difficult for people to cross their borders illegally. This
barrier to the free movement of labor is an example of - answer✔a market imperfection.
Privatization refers to the process of - answer✔a country divesting itself of the ownership and
operation of a business venture by turning it over to the free market system.
If the United States imports more than it exports, then - answer✔one can infer that the U.S.
dollar would be under pressure to depreciate against other currencies.
the supply of dollars is likely to exceed the demand in the foreign exchange market, ceteris
paribus.
Doug Bernard specializes in cross-rate arbitrage. He notices the following quotes:
Swiss franc/dollar = SFr1.6043/$
, ©SIRJOEL EXAM SOLUTIONS
10/11/2024 1:41 PM
Australian dollar/U.S. dollar = A$1.8296/$
Australian dollar/Swiss franc = A$1.1494/SFr
Ignoring transaction costs, does Doug Bernard have an arbitrage opportunity based on these
quotes? If there is an arbitrage opportunity, what steps would he take to make an arbitrage profit,
and how much would he profit if he has $1,000,000 available for this purpose? - answer✔Sell
dollars to get Swiss francs: Sell $1,000,000 to get $1,000,000 × SFr1.6043/$ = SFr1,604,300.
ii. Sell Swiss francs to buy Australian dollars: Sell SFr1,604,300 to buy SFr1,604,300 ×
A$1.1494/SFr = A$1,843,982.42.
iii. Sell Australian dollars for dollars: Sell A$1,843,982.42 for A$1,843,982.42/A$1.8296/$ =
$1,007,860.96.
Thus, your arbitrage profit is $1,007,860.96 − $1,000,000 = $7,860.96.
Suppose you start with $100 and buy stock for £50 when the exchange rate is £1 = $2. One year
later, the stock rises to £60. You are happy with your 20 percent return on the stock, but when
you sell the stock and exchange your £60 for dollars, you only get $45 since the pound has fallen
to £1 = $0.75. This loss of value is an example of - answer✔exchange rate risk.
Country. U.S. $ equiv. Currency per U.S. $
Tuesday Monday Tuesday. Monday
, ©SIRJOEL EXAM SOLUTIONS
10/11/2024 1:41 PM
U.K.(Pound)£62,500. 1.6000. 1.6100. 0.6250. 0.6211
1 Month Forward. 1.6100. 1.6300. 0.6211. 0.6173
3 Months Forward. 1.6300. 1.6600. 0.6173. 0.6024
6 Months Forward. 1.6600. 1.7200. 0.6024. 0.581412
12 Months Forward. 1.7200. 1.8000. 0.5814. 0.5556
Using the table shown, what is the most current spot exchange rate shown for British pounds?
Use a direct quote from a U.S. perspective. - answer✔$1.60 = £1.00
The main cost of European monetary union is - answer✔the loss of national monetary and
exchange rate policy independence.
The current spot exchange rate is $1.55/€ and the three-month forward rate is $1.50/€. Based on
your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.52/€
in three months. Assume that you would like to buy or sell €1,000,000. What actions do you
need to take to speculate in the forward market? - answer✔Take a long position in a forward
contract on €1,000,000 at $1.50/€.
The gold standard still has ardent supporters who believe that it provides - answer✔an effective
hedge against price inflation.
