IBUS 302: International Finance, Exam 1
EXAMPLE
There are 100 possible points, and the exam is worth 15% of your course
grade. You have one hour and fifteen minutes. You are only permitted to
use a calculator. To receive credit, you must show all of your work. In
yours answers, provide the correct number of decimal points for
exchange rates and two decimal points for percentages, e.g., 1.34%.
Short Answers (50 points)
NAME: _____________________________
1. Describe one benefit of the introduction of the Euro. (5 points)
2. If the pound appreciates against the dollar, how does S($/£) change?
Explain briefly. (5 points)
3. What is a forward transaction? (5 points)
4. In which areas of the globe has most privatization occurred? (5 points)
5. How does free trade enhance a country’s economic well-being? (5
points)
6. What was London’s ‘Big Bang’? (5 points)
7. What is the importance of the General Agreement on Tariffs and Trade
(GATT)? Explain briefly. (5 points)
8. Describe the interbank market. (5 points)
9. List the conditions necessary for arbitrage. (5 points)
10. What is one problem in managing political risk? (5 points)
Calculations (50 Points) Remember to show all calculations.
11. Complete the table below. (10 points)
3/19/2016
IBUS 302: International Finance, Exam 1
2 (of 2)
Exchange Rates
JPY
EUR
CAD
95.2381
0.7138
1.1571
USD
USD
JPY
EUR
CAD
12. If Sb(€/£) = 0.8643 and Sa(€/£) = 0.8650, what are the following values:
(10 points)
Sb(£/€) = ________________
Sa(£/€) = ________________
13. Find the Bid-Ask Cross Rates. (10 points)
Bid
Ask
USD
1
1.4010
0.8642
0.9225
USD
EUR
CAD
CHF
USD
EUR
CAD
CHF
USD
1
1.4018
0.8647
0.9231
Find Cross-Rate
Sb(CHF/CAD)
14. Triangular Arbitrage (10 points)
Exchange Rates
JPY
EUR
CAD
1 95.2381
0.7138
1.0571
0.010500
1
0.007495 0.011100
1.4010 133.4241
1
1.4809
0.9460 90.0937
0.7752
1
USD
USD
JPY
EUR
CAD
1. Is there an arbitrage opportunity?
2. What is the arbitrage profit?
3. What is the order of currencies to capture the profit?
Arbitrage (Yes/No)
Arbitrage Profit
USD, JPY, CAD
Order of Currencies
$ → _____ → _____ → $
15. Calculate the Forward Premiums/Discounts. (10 points)
Forward Rates
USD/EUR
0
1.4002
1
1.4005
3
1.4025
6
1.4055
Forward
Premium/Discount
1
3
6