FINANCE 4144 LAST 4 DIGITS OF YOUR STUDENT#_____
FALL 2004 ANSWER ONLY IN THE SPACE
FINAL EXAM ALLOWED. DO NOT WRITE ON
PROFESSOR G. R. THOMPSON THE BACKS OF THE PAGES.
SHOW ALL WORK
10 1. How does a banker’s acceptance come into existence?
20 2. Tell me exactly how an American Company would hedge the exchange rate
risk associated with a receivable using a money market hedge. Use numbers
assuming a 7,500,000 CHF receivable that is due in 180 days, and assume an
interest rate of 2.5 percent in the U.S. and an interest rate of 1.75 in
Switzerland. Be thorough and complete to receive full credit.
20 3. Use the single graph incorporating both local and foreign supply to display
the influence of an import tariff (equal to 50% of the cost of the imported
autos) on the quantity of automobiles sold in the U.S. Be sure to display the
influence of the tariff on equilibrium prices and the number of autos sold by
local as well as foreign producers.
10 4. Explain in some detail the method in which an arbitrageur would make a
riskless profit using the technique of covered interest arbitrage. Tell me all
of the positions the arbitrageur would take as well as what would allow for
the riskless profit.
10 5. What impact would one most likely expect to find upon a firm’s beta from
the decision to become a multi-national corporation? No numbers are
necessary, but enough discussion to convince me that you really understand
is required for full credit.
USE THE ATTACHED CURRENCY TRADING INFORMATION FOR
26 OCTOBER, 2004 (two tables)FOR QUESTION SIX
5 ea) 6. Please answer the following (SHOW YOUR WORK!)
a) How many Thai Baht can you get for one Indian Rupee?
b) How many Norwegian Kroner can you get for one Danish Krone?
c) How many Euro’s can you get for one British Pound?
d) Relative to the US Dollar, what is the 90-day forward premium or
discount on the Canadian Dollar?
USE THE ATTACHED CURRENCY TRADING INFORMATION
FROM THE FEDERAL RESERVE BOARD FOR JULY 2002 AND THE
SHEET FOR RATES ON 26 OCTOBER, 2004 FOR QUESTION SEVEN
5 ea) 7. a) Relative to the US dollar, how much has the British (United Kingdom)
Pound appreciated or depreciated between the end of June, 2001 and
26 October, 2004?
b) Relative to the US dollar, how much has the Swiss Franc appreciated
or depreciated between the end of June, 2001 and 26 October, 2004?