Reference no: EM132643808

                                                 Currency                   Lending Rate

Borrowing Rate Dollars            4.50%                     6.50%

New Zealand dollar (NZ$)          6.40%                      8.00%

Question 1: John sold a put option on Euro for $.02 per unit. The strike price was $1.30, and the spot rate at expiration date was $1.27. Also assume that there are 100,000 units in a Euro option. What was John's net profit on the put option at expiration date?

Baylor Bank believes the New Zealand dollar will appreciated over the next 15 days from $.90 to $.93. The following annual interest rates apply:

Question 2: Baylor Bank has the capacity to borrow either NZ$10 million or $9 million. If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the 15 days period (assuming it does not use any of its existing consumer deposits to capitalize on its expectations)?

Question 3: Compute the bid/ask percentage spread for Mexican peso retail transactions in which the ask rate is $.0806 and the bid rate is $.0770.

Question 4: You observe following exchange rate quotations: $1 is equal to 6.8321 Chinese yuan (CNY) and 1 Japanese yen (JPY) equal to 0.0610 Chinese yuan. How many U.S. dollars will you need to purchase 1 million Japanese yen?

Question 5: The one-year forward rate of the British pound is quoted at $1.6012, and the spot rate of the British pound is quoted at $1.6068. The forward is present premium (or discount) at what annual percent?

Question 6: Assume that the United States invests in government and corporate securities of Country K. In addition, residents of Country K invest in the United States. Approximately $8 billion worth of investment transactions occur between these two countries each year. The total dollar value of trade transactions per year is about $12 million. This information is expected to also hold in the future.

Because your firm exports goods to Country K, your job as international cash manager requires you to forecast the value of Country K's currency (the "krank") with respect to the dollar. Explain how each of the following conditions will affect the value of the krank, holding other things equal. Then, aggregate all of these impacts to develop an overall forecast of the krank's movement against the dollar.

a. The U.S. inflation has suddenly increased substantially, while Country K's inflation remains low.

b. The U.S. interest rates have increased substantially, while Country K's interest rates remain low. Investors of both countries are attracted to high interest rates.

c. The U.S. income level increased substantially, while Country K's income level has remained unchanged.

d. The U.S. is expected to impose a small tariff on goods imported from Country K.

e. Combine all expected impacts to develop an overall forecast.