国际财务管理课后习题答案chapterWord文件下载.docx
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Theforwardexchangeratewillbeanunbiasedpredictorofthefuturespotrateif(I)theriskpremiumisinsignificantand(ii)foreignexchangemarketsareinformationallyefficient.
4.Explainthepurchasingpowerparity,boththeabsoluteandrelativeversions.Whatcausesthedeviationsfromthepurchasingpowerparity?
Theabsoluteversionofpurchasingpowerparity(PPP):
S=P$/P£
.
Therelativeversionis:
e=π$-π£
PPPcanbeviolatediftherearebarrierstointernationaltradeorifpeopleindifferentcountrieshavedifferentconsumptiontaste.PPPisthelawofonepriceappliedtoastandardconsumptionbasket.
5.Discusstheimplicationsofthedeviationsfromthepurchasingpowerparityforcountries’competitivepositionsintheworldmarket.
IfexchangeratechangessatisfyPPP,competitivepositionsofcountrieswillremainunaffectedfollowingexchangeratechanges.Otherwise,exchangeratechangeswillaffectrelativecompetitivenessofcountries.Ifacountry’scurrencyappreciates(depreciates)bymorethaniswarrantedbyPPP,thatwillhurt(strengthen)thecountry’scompetitivepositionintheworldmarket.
6.ExplainandderivetheinternationalFishereffect.
TheinternationalFishereffectcanbeobtainedbycombiningtheFishereffectandtherelativeversionofPPPinitsexpectationalform.Specifically,theFishereffectholdsthat
E(π$)=I$-ρ$,
E(π£
)=I£
-ρ£
Assumingthattherealinterestrateisthesamebetweenthetwocountries,i.e.,ρ$=ρ£
andsubstitutingtheaboveresultsintothePPP,i.e.,E(e)=E(π$)-E(π£
),weobtaintheinternationalFishereffect:
E(e)=I$-I£
7.Researchersfoundthatitisverydifficulttoforecastthefutureexchangeratesmoreaccuratelythantheforwardexchangerateorthecurrentspotexchangerate.Howwouldyouinterpretthisfinding?
Thisimpliesthatexchangemarketsareinformationallyefficient.Thus,unlessonehasprivateinformationthatisnotyetreflectedinthecurrentmarketrates,itwouldbedifficulttobeatthemarket.
8.Explaintherandomwalkmodelforexchangerateforecasting.Canitbeconsistentwiththetechnicalanalysis?
Therandomwalkmodelpredictsthatthecurrentexchangeratewillbethebestpredictorofthefutureexchangerate.Animplicationofthemodelisthatpasthistoryoftheexchangerateisofnovalueinpredictingfutureexchangerate.Themodelthusisinconsistentwiththetechnicalanalysiswhichtriestoutilizepasthistoryinpredictingthefutureexchangerate.
*9.Deriveandexplainthemonetaryapproachtoexchangeratedetermination.
ThemonetaryapproachisassociatedwiththeChicagoSchoolofEconomics.Itisbasedontwotenets:
purchasingpowerparityandthequantitytheoryofmoney.Combingthesetwotheoriesallowsforstating,say,the$/£
spotexchangerateas:
S($/£
)=(M$/M£
)(V$/V£
)(y£
/y$),
whereMdenotesthemoneysupply,Vthevelocityofmoney,andythenationalaggregateoutput.Thetheoryholdsthatwhatmattersinexchangeratedeterminationare:
1.Therelativemoneysupply,
2.Therelativevelocitiesofmonies,and
3.Therelativenationaloutputs.
10.CFAquestion:
1997,Level3.
A.Explainthefollowingthreeconceptsofpurchasingpowerparity(PPP):
a.Thelawofoneprice.
b.AbsolutePPP.
c.RelativePPP.
B.EvaluatetheusefulnessofrelativePPPinpredictingmovementsinforeignexchangerateson:
a.Short-termbasis(forexample,threemonths)
b.Long-termbasis(forexample,sixyears)
A.a.Thelawofoneprice(LOP)referstotheinternationalarbitrageconditionforthestandard
consumptionbasket.LOPrequiresthattheconsumptionbasketshouldbesellingforthesamepriceinagivencurrencyacrosscountries.
A.b.AbsolutePPPholdsthatthepricelevelinacountryisequaltothepricelevelinanothercountrytimestheexchangeratebetweenthetwocountries.
A.c.RelativePPPholdsthattherateofexchangeratechangebetweenapairofcountriesisaboutequaltothedifferenceininflationratesofthetwocountries.
B.a.PPPisnotusefulforpredictingexchangeratesontheshort-termbasismainlybecauseinternationalcommodityarbitrageisatime-consumingprocess.
B.b.PPPisusefulforpredictingexchangeratesonthelong-termbasis.
PROBLEMS
1.SupposethatthetreasurerofIBMhasanextracashreserveof$100,000,000toinvestforsixmonths.Thesix-monthinterestrateis8percentperannumintheUnitedStatesand6percentperannuminGermany.Currently,thespotexchangerateis€1.01perdollarandthesix-monthforwardexchangerateis€0.99perdollar.ThetreasurerofIBMdoesnotwishtobearanyexchangerisk.Whereshouldhe/sheinvesttomaximizethereturn?
Themarketconditionsaresummarizedasfollows:
I$=4%;
i€=3.5%;
S=€1.01/$;
F=€0.99/$.
If$100,000,000isinvestedintheU.S.,thematurityvalueinsixmonthswillbe
$104,000,000=$100,000,000(1+.04).
Alternatively,$100,000,000canbeconvertedintoeurosandinvestedattheGermaninterestrate,withtheeuromaturityvaluesoldforward.Inthiscasethedollarmaturityvaluewillbe
$105,590,909=($100,000,000x1.01)(1+.035)(1/0.99)
Clearly,itisbettertoinvest$100,000,000inGermanywithexchangeriskhedging.
2.WhileyouwerevisitingLondon,youpurchasedaJaguarfor£
35,000,payableinthreemonths.YouhaveenoughcashatyourbankinNewYorkCity,whichpays0.35%interestpermonth,compoundingmonthly,topayforthecar.Currently,thespotexchangerateis$1.45/£
andthethree-monthforwardexchangerateis$1.40/£
.InLondon,themoneymarketinterestrateis2.0%forathree-monthinvestment.TherearetwoalternativewaysofpayingforyourJaguar.
(a)KeepthefundsatyourbankintheU.S.andbuy£
35,000forward.
(b)BuyacertainpoundamountspottodayandinvesttheamountintheU.K.forthreemonthssothatthematurityvaluebecomesequalto£
35,000.
Evaluateeachpaymentmethod.Whichmethodwouldyouprefer?
Why?
Solution:
Theproblemsituationissummarizedasfollows:
A/P=£
35,000payableinthreemonths
iNY=0.35%/month,compoundingmonthly
iLD=2.0%forthreemonths
S=$1.45/£
;
F=$1.40/£
Optiona:
Whenyoubuy£
35,000forward,youwillneed$49,000inthreemonthstofulfilltheforwardcontract.Thepresentvalueof$49,000iscomputedasfollows:
$49,000/(1.0035)3=$48,489.
Thus,thecostofJaguarasoftodayis$48,489.
Optionb:
Thepresentvalueof£
35,000is£
34,314=£
35,000/(1.02).Tobuy£
34,314today,itwillcost$49,755=34,314x1.45.ThusthecostofJaguarasoftodayis$49,755.
Youshoulddefinitelychoosetouse“optiona”,andsave$1,266,whichisthedifferencebetween$49,755and$48489.
3.Currently,thespotexchangerateis$1.50/£
andthethree-monthforwardexchangerateis$1.52/£
.Thethree-monthinterestrateis8.0%perannumintheU.S.and5.8%perannumintheU.K.Assumethatyoucanborrowasmuchas$1,500,000or£
1,000,000.
a.Determinewhethertheinterestrateparityiscurrentlyholding.
b.IftheIRPisnotholding,howwouldyoucarryoutcoveredinterestarbitrage?
Showallthestepsanddeterminethearbitrageprofit.
c.ExplainhowtheIRPwillberestoredasaresultofcoveredarbitrageactivities.
Let’ssummarizethegivendatafirst:
S=$1.5/£
F=$1.52/£
I$=2.0%;
I£
=1.45%
Credit=$1,500,000or£
a.(1+I$)=1.02
(1+I£
)(F/S)=(1.0145)(1.52/1.50)=1.0280
Thus,IRPisnotholdingexactly.
b.
(1)Borrow$1,500,000;
repaymentwillbe$1,530,000.
(2)Buy£
1,000,000spotusing$1,500,000.
(3)Invest£
1,000,000atthepoundinterestrateof1.45%;
maturityvaluewillbe£
1,014,500.
(4)Sell£
1,014,500forwardfor$1,542,040
Arbitrageprofitwillbe$12,040
c.Followingthearbitragetransactionsdescribedabove,
Thedollarinterestratewillrise;
Thepoundinterestratewillfall;
Thespotexchangeratewillrise;
Theforwardexchangeratewillfall.
TheseadjustmentswillcontinueuntilIRPholds.
4.Supposethatthecurrentspotexchangerateis€0.80/$andthethree-monthforwardexchangerateis€0.7813/$.Thethree-monthinterestrateis5.6percentperannumintheUnitedStatesand5.40percentperannuminFrance.Assumethatyoucanborrowupto$1,000,000or€800,000.
a.Showhowtorealizeacertainprofitviacoveredinterestarbitrage,assumingthatyouwanttorealizeprofitintermsofU.S.dollars.Alsodeterminethesizeofyourarbitrageprofit.
b.Assumethatyouwanttorealizeprofitin
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