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Question:
a) Using illustrative and numerical examples, differentiate between arbitraging and speculation in the context of foreign exchange market.
b) One year borrowing and deposit interest rates are 12% and 10% respectively in the Republic of Tran and 10% and 8.89% respectively in the Kingdom of Sylvania. The spot exchange rate for the Tran dollars is $14 to the Sylvan Francs. The 12-month forward rate is $14.52. The economies are pegged together, and have been so for a number of years.
i) Suggest a way you may profit from the pricing inconsistency that is presented here, consider you have no initial investment funds.
ii) Will the situation persist forever? Describe your answer.
iii) What could be the spot rate which would bring a no-arbitrage situation?
Problem: (a) What are the main functions of the Bank of Mauritius? Give short comments on each function. (b) The Repo rate is an instrument of monetary policy for the Bank
Profit for the year R3 million R4 million Gross dividends R1.5 million R2 million Market value per ordinary share R4 R1.60 Number of ordinary shares 5
Explain with proof that c >= max(S - X, 0), where c is the value of the European call option, S is the price of the underlying asset and X is the strike of the option. The follo
This method simply calculates the average of a number of expert estimates. Let E denote the number of experts, and mn,e denote the forecast of expert e, e =1, ... ,E, for SKU n 2N.
a) The option to expand the capacity of a project can be viewed as owning what kind of option written on the underlying project? Explain b) The option to shutdown a proje
The problem considered is that of forecasting demand for single-period products before the period starts. We study this problem for the case of a mail order apparel company that ne
Question: (a) A bank quotes the following prices for the US dollar: €0.7915 - €0.7918 A German company receives €10 million as payment for a generator supplied to an Americ
Allied Managed Care Company is evaluating two different computer systems for handling provider claims. There are no incremental revenues attached to the projects, so the decisio
Question: (a) You are given the following information on two risky assets A and B. E(X) = 25% E(Y) = 30% Var (X) = 16% Var (Y) = 49% The correlation matr
Question: i) Compare and contrast the various types of fixed income securities. ii) ‘A new issue of callable bonds will generally carry a higher interest rate
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