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Category > Business & Finance Posted 18 Aug 2017 My Price 7.00

IF Practice Questions Spring 2017 1.

International Finance is the subject. i have attached the document below with all of the questions

IF Practice Questions
Spring 2017
1. JrHeadcon is hydro-construction firm with a government contract to install salt water
purification plants in a number of Chile’s northern coastal desert settlements The work is to
be completed in one year at which time the final payment of 25B( billion) Chilean Pesos
(CLPs) will be wired to JrHeadcon’s NY bank. At the current spot exchange rate of .
002USDs per CLP, the contract payment would be worth 50M USDs. The chief financial
officer (CFO) of JrHeadcon calls you, his NY banker, and requests a one-year forward
exchange rate quote from the bank to sell the CLPs. Before calling the CFO back, you look up the current interbank lending/borrowing rates for
CLPs and USDs. The current one-year interbank interest rates are i(CLP) = 6% and i(USD) =
2%.
A. Design a set of lending/borrowing positions in the interbank money market that will
generate a risk-free one-year-ahead forward rate quote stated in terms of USDs per CLP.
Explain why this is a risk-free quote.
B. How much will the USD value of the 25B CLP one-year-ahead contract payment be if
JrHeadcon accepts the offered forward rate from your bank?
Hint: See the money market hedge setup in Note Set 7. 2. You work for a bond trader who is thinking of taking uncovered positions in foreign bonds to
boost his investment returns. He has never invested in foreign bonds before but is about to buy
100M Lower Slobovian dollars’ (the acronym is LSD) worth of one-year-maturity Lower
Slobovian treasury bills.
Lower Slobovia has for years been on a fixed exchange rate relative to the USD at par (that is,
one LSD for one USD.)
Your boss wants to buy the Lower Slobovian treasury bills because they pay 10% in LSDs while
one-year US Treasuries pay only 2% in USDs. “It’s a risk-free 8% spread! The fixed exchange
rate policy of the Lower Slobovian government guarantees our profit by keeping the LSD-USD

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Martinakom
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Status NEW Posted 18 Aug 2017 03:08 PM My Price 7.00

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