Summary Example questions International Corporate Finance - 2025/2026

Part I :
foreign exchange markets


what are the tests to check
predictability of exchange rates (ST) ?
- First of all
.
We have the
first-order correlation
,
which tests the relationship between the same
things
In
over time .
this case
,
the correlation
of the
logarithm of the
exchange rate over time.




The second test is the
Box-Ljung Statistic
,
where we will look at the
significance of the autocorrelation
look
measured in the
first test over time . We're
going to
if the
exchange rates significantly
are


Another test is "Portmanteau test' becaus it looks
correlated. name
for this the like a cloth
hanges
when put on a
graph .



Hi the autocorrelation is O
,
the data are
indipendently distributed (low Q-values)
distributed
H : the data are not
independently ,
there is serial correlation.




The is (ADF) test Here check
for When
test the
Augmented Dickey-Fuller will
third .
,
we unit root . there is


unit root in
your
data
,
you're not able to tell what is the average
. You
can't
interpret the moments
.


is unit root
Ho : there .




H: there is no unit root .




When
you reject Ho ,
you
take the
first difference .
We don't want unit root
.




Explain the tables.

When
looking at the table
first have to look
- we
,




at the ADF-values · We observe that these are lower

the critical value Which not
than ,
means
they are


and H
statistically significant we can't
reject .
We

also see an autocorrelation
of 1 and
high as


for the
Box-Ljung statistic .


Something is
clearly
not because there is unit root. We can't
right .




Interpret the moments ,
currencies are
unpredictable.


in the Mond talls we look at the
first differences
alserve much
of the
exchange rates ,
and we
ligger
values
for the ADF-test .
We can
reject the Ho .
there

is unit root
no and we can
analyze the moments
.


The second is autocorrelation where
thing we look at ,




we observe values close to 0 .
The third test , the



Box-Ljung Statistic ,
shows that GBP is
Statistically
significant . Even
though
the statistical
significance
be
is 3% it isn't
enough
to
economically
significant too . We conclude that currencies are




unpredictable over the short term .

, Exercises on spot markets for foreign currencies.

TheNX lank is
offering the
following quotes :
Sydney is
quoting ,
JPY ArD : 68 30-69
.
. 00



J PY USD 110 . 25 -
111 . 10


AUD USD 1 . 6520 -
30 =>
Arbitrage
? How to proceed ?



- We need to create a
synthetic quate for the NX lank
for JPX AVD ,
which is done the this :



JPY USD -

USD AUD = JPY AND

Bid
3
=> 25 1 66 70
: 110 .
.

1 . 6530 = .




1
=>
Ask : 111 .
10 .
1 . 6520 = 67 .
25 - JPY AUD : 66 70.
-
67 .
25


= There is no overlap with the
Sydney quote ,
which means


that there is a
posibility to make
profit .




1111 Those
You sell JPX in New York
against .
10
,
and
you receive USD
for it .
USD
,
you
sell
again for AVD

The
against
1 6520
. . received AND
,
you
then sell in
Sydney against 68 30. .




(11 10)
This the
following 68 30 riskless
profit of
= 1 6520 0156 0156 .
gives you 1 0
process a
·

: : = .
. . . .
,




Part I : international rate determination
parity conditions &
exchange
PPP and about ?
What is the what is this
figure
The
purchasing parrity
is the lacline
forecast for future
-
power

exchange
rates in the
long team. The PPP
functions as the

lenchmark and tends behave where
magnet exchange
to as a



rates turn to .
On the
long term ,
there is mean
reverting
linaviour towards the PPP.




is the
graph we sel two lines : the lue one
for the actual

PPP The
exchange rate USD EUR and the black one
for the . mean


behaviour and
magnet functioning
be observed Whenever the
reventing can here .


exchange rate
gos
back down The PPP
up too
high ,
it comes
,
and the other
way
around . is an indication
of where

Is lox
the stack market will go on the
long term ,
a benchmark .
this case
,
in the red
,
we


Observe When look
an overvaluation
of USD . The EUR is
depreciating and the USD is
appreciating .
we



at the lox It's the other around .
green ,
way

How to test with the ppP ?
This index
be done
through Big Mar
good standard
for comparing price levels of
-
can the ,
a



We
different countries. can use this to check
if certain currencies are over- or undervalued.




is there empirical PPP ?
evidence
for the
working of the

is PPP
>
-
yes ,
there empirical evidence that showe that deviations
from the are
temporary .

Half
of the deviations within shows that it
from parity dissapear one
year ,
which tends towards the


PPP
magnet that is .