University: AMITY Year: 20151
Assume zero transaction costs:
A: ¥/U$ = 106.50, B: C$/U$ = 1.3215 , C: ¥/C$ = 82.905
a) Determine if triangular arbitrage is feasible.
b) State what you would do to profit from arbitrage.
c) Obtain the percentage profit possible.
2
How the currency exchange rates are determined? What role is played by the interest
rates in determining the exchange rates? Explain by giving an practical example.
3
More the risks more are going to be the returns. What types of risk exist in the
international foreign exchange markets? Do we have any risk management system as
well?
4
The forex markets are different kinds of markets where customers are connected globally.
Elaborate.
5
“A sound financial system is the backbone of a developing economy”. Do you agree with
the statement? Give your arguments by illustrating each of them.
ASSIGNMENT B
1. “Financial markets need to be regulated and controlled”. Do you agree with the
statement?
a) Elaborate by explaining the types of financial markets and role of central bank in an
international scenario
b) Also can you relate the regulation with the recent global financial crisis?
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2. What do you mean by term structure of interest rates? Explain three main theories of the
term structure that have been proposed.
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3. What do you understand by: SLR, CRR, Deposit creation, Repo & Reverse Repo rate.
Explain these terms through a balance sheet of a bank?
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ASSIGNMENT C
Question No: 1
The key Eurocurrency interest rate is called
Euro-Exchange Rate (EER).
Euro-Prime Rate (EPR)
London Interbank Offer Rate (LIBOR).
New York Bank Rate (NYBR).
Question No: 2
A bank that handles affairs of another bank which has no legal standing in the jurisdiction is called
a merchant bank.
a client bank
an off-shore bank
a correspondent bank
Question No: 3
The largest international banking centre in the world is
New York.
Toronto
Tokyo
London
Question No: 4
A broker matches the ____________ bid prices quoted by different dealers when the client wants to ___________ foreign exchange.
Lowest, buy
Highest, buy
Lowest, sell
Highest, sell
Question No: 5
Which of the following are not ways in which risk management can increase the value of a company?
Risk management can increase debt capacity.
Risk management can help a firm maintain its optimal capital budget
Risk management can reduce the expected costs of financial distress.
Risk management can help firms minimize taxes
Question No: 6
These derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary.
Over the counter
exchange traded
both of the above
none of the above
Question No: 7
These are contracts to buy or sell an asset on or before a future date at a price specified today.
Futures
options
swaps
all of the above
Question No: 8
These are contracts that give the owner the right, but not the obligation, to buy (in the case of a call option) or sell (in the case of a put option) an asset.
Futures
options
swaps
forwards
Question No: 9
Which of the following might affect the cost of a trip to Japan by a resident of Britain?
The depreciation of the Euro
The time at which the British resident purchases Yen
The depreciation of the US dollar
All of the above.
Question No: 10
A company that functions to unite sellers and buyers of foreign currency-denominated
bank deposits is called:
a broker.
an investor.
a wholesaler.
a bank
Question No: 11
_____________ contracts are more widely accessible to firms and individuals than
____________ contracts.
Futures; forward
Forward; future
Forward; arbitrageur
Arbitrageur; forward
Question No: 12
If the euro dollar deposit rate is 3% per year and the euro-euro rate is 6% per year, by
how much will the euro be expected to devalue in the coming year?
0.3%
2.0%
2.9%
3.0%
Question No: 13
According to which theory will differences in nominal interest rates be eliminated in the
exchange rate?
The PPP.
The Fisher effect.
The Leontief paradox
The combined equilibrium theory
Question No: 14
If inflation goes up in the US relative to other countries, it is expected that the price of
the US dollar will:
increase.
remain the same.
fall.
may increase or decrease.
Question No: 15
Which of the following is an exchange risk management technique through which the
firm contracts with a third party to pass exchange risk onto that party, via instruments
such as forward contracts, futures, and options?
Diversification.
Risk avoidance.
Risk transfer.
Risk adaptation.
Question No: 16
What is the base interest rate paid on deposits among banks in the eurocurrency market
called?
INEC.
EUIN.
LIBOR.
INEU.
Question No: 17
……... parity is a no-arbitrage condition representing an equilibrium state under which investors will be indifferent to interest rates available on bank deposits in two countries.
interest rate
purchasing power
both of the above
none of the above
Question No: 18
Investors cannot then earn ………. profits by borrowing in a country with a lower interest rate, exchanging for foreign currency, and investing in a foreign country with a higher interest rate
real
TRUE
clear
arbitrage
Question No: 19
…………. interest rate parity refers to the parity condition in which exposure to foreign exchange risk (unanticipated changes in exchange rates) is uninhibited
covered
uncovered
both of the above
none of the above
Question No: 20
………….. interest rate parity refers to the condition in which a forward contract has been used to cover (eliminate exposure to) exchange rate risk
covered
uncovered
both of the above
none of the above
Question No: 21
Each form of the parity condition demonstrates a ……….. relationship
single
multple
unique
all of the above
Question No: 22
Uncovered interest rate parity helps explain the determination of the ……... exchange rate.
option
forward
swaps
spot
Question No: 23
covered interest rate parity helps explain the determination of the …………. exchange rate.
option
forward
swaps
spot
Question No: 24
negotiated private equity investment by financial institutions in the unregistered securities of either privately or publicly held companies.
commercial bank
wholesale banking
merchant banking
venture capital
Question No: 25
What is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products.
insurance
bank assurance
shares
debentures
Question No: 26
CAR recognizes that ……... can have different levels of risk.
liabilities
resources
assets
capital
Question No: 27
It is the ratio which determines the capacity of the bank in terms of meeting the time liabilities and other risks such as credit risk, operational risk, etc.
ROI
ROE
Capital adequacy ratio
EPS
Question No: 28
. OTC stands for
Over the client
Over the customer
Over the counter
None of these
Question No: 29
Forward contracts are _________ while futures contracts are ___________ products.
Exchange traded, OTC
OTC, exchange traded
Non deliverable, deliverable
Deliverable, Non-Deliverable
Question No: 30
Forward contracts:
contain a commitment by the owner, and are standardized.
contain a commitment by the owner, and can be tailored to the desire of the owner.
contain a right but not a commitment by the owner, and can be tailored to the desire of the owner.
contain a right but not a commitment by the owner, and are standardized.
Question No: 31
Futures contracts are typically _______; forward contracts are typically _______.
sold on an exchange; sold on an exchange
offered by commercial banks; sold on an exchange
sold on an exchange; offered by commercial banks
offered by commercial banks; offered by commercial banks
Question No: 32
A U.S. company is expected to receive £100,000 in 120 days. If the company wants to minimize the risk of foreign exchange, then it would
buy British pounds forward
sell British pounds forward
buy British pounds 120 days from now
sell British pounds 120 days from now
Question No: 33
If a company contracts today for some future date of actual currency exchange, they will be making use of a:
stock rate.
variable rate.
futures rate.
forward rate.
Question No: 34
The vast majority of large-scale foreign exchange transactions in the US are
done through foreign exchange brokers.
done through Morgan-Chase and Deutsche Bank of America.
done through Interbank.
done through the Chicago Mercantile Exchange
Question No: 35
Which of the following are usual suppliers of Euros?
US foreign investors remitting profits.
European direct investors.
US exporters.
All of the above.
Question No: 36
If Euros are quoted at price $1.2055 in Citibank in New York, this means that:
large banks will quote their own rate while small banks will follow the lead of Citibank.
every other bank is quoting the same price.
this is the price used by the Central Bank.
most banks will probably be in that range.
Question No: 37
The risks of losing money in Forex trading is high, but it is controllable Through
Proper education and training
SPECULATION
Black marketing
all of the above
Question No: 38
Forex trading is always done in pairs
Yes
No
None of the above
Can't say
Question No: 39
US firms often find that borrowing from foreign markets:
is disadvantageous because the exchange rate risk increases the cost of borrowing.
is about the same as borrowing domestically.
is more expensive
is less expensive.
Question No: 40
Which of the following is an example of foreign exchange?
Exchange of cash issued by a foreign central bank.
Exchange of claims denominated in another currency
Exchange of bank deposits.
All of the above.
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