Reference no: EM133117396
1. A Thai multinational corporation enters in to forward contract with Bangkok Bank to buy U.S. dollars in 180 days. Suppose when the contract settles in 180 days, the spot rate of the U.S. dollar is below the 180-day forward rate of the U.S. dollar. The party that is most likely to default on the forward agreement would be:
a. Bangkok Bank.
b. None of the answers are correct.
c. Neither party would ever default on the forward agreement.
d. the Thai multinational corporation.
2.The relative form of PPP theory states that prices of identical goods sold in different countries when expressed in a common currency should be equal.
True
False
3.Which of the following must be taken into consideration when assessing the feasibility of covered interest arbitrage?
a. Differential tax laws
b. All of the answers are correct
c. Political risk
d. Costs associated with buying and selling of currencies
4.Assume the following information:
You have 400,000 baht to invest.
Current spot rate of pound
= 48 baht
1 year forward rate of the pound
= 48.2 baht
1 year interest rate in the Thailand
= 4.0%
1 year interest rate in UK
= 4.2%
If you conduct covered interest arbitrage, what amount will you have after 1 year to the nearest baht?
a. 325,509 baht
b. 532,780 baht
c. none of the answers are correct
d. 418,537 baht
5. Nahiyan walks into Bangkok Bank and exchanges Thai baht for Canadian dollars. He leaves the bank 10 minutes later with Canadian dollars. The rate at which the exchange took place is called the
a. option rate.
b. spot rate.
c. futures rate.
d. forward rate.
6. You purchased an investment and your consumption of goods/services grew by 3 percent. 3 percent is the:
a. real interest rate
b. nominal interest rate
c. inflation rate
d. transaction costs
7. A seller of exactly one currency futures contract can close out his/her position before settlement bu buying exactly two identical contracts before the settlement date.
True
False
8. When Interest Rate Parity (IRP) does not hold.
a. there are opportunities for covered interest arbitrage.
b. the financial markets are in equilibrium and there are opportunities for covered interest arbitrage.
c. there is usually a high degree of inflation in at least one country.
d. the financial markets are in equilibrium.