國(guó)際財(cái)務(wù)管理(英文版)課后習(xí)題答案6

CHAPTER5 THEMARKETFORFOREIGNEXCHANGESUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTERQUESTIONSANDPROBLEMSQUESTIONSGiveafulldefinitionofthemarketforforeignexchange.Answer:Broadlydefined,theforeignexchange(FX)marketencompassestheconversionofpurchasingpowerfromonecurrencyintoanother,bankdepositsofforeigncurrency,theextensionofcreditdenominatedinaforeigncurrency,foreigntradefinancing,andtradinginforeigncurrencyoptionsandfuturescontracts.Whatisthedifferencebetweentheretailorclientmarketandthewholesaleorinterbankmarketforforeignexchange?Answer: Themarketforforeignexchangecanbeviewedasatwo-tiermarket. Onetieriswholesaleorinterbankmarketandtheothertieristheretailorclientmarket. InternationalprovidethecoreoftheFXmarket. Theystandwillingtobuyorsellforeigncurrencyfortheirownaccount. Theseinternationalbanksservetheirretailclients,corporationsorindividuals,inconductingforeigncommerceormakinginternationalinvestmentinfinancialassetsthatrequiresforeignexchange.Retailtransactionsaccountforonlyabout14percentofFXtrades. Theother86percentisinterbanktradesbetweeninternationalbanks,ornon-bankdealerslargeenoughtotransactintheinterbankmarket.Whoarethemarketparticipantsintheforeignexchangemarket?Answer: ThemarketparticipantsthatcomprisetheFXmarketcanbecategorizedintofivegroups:internationalbanks,bankcustomers,non-bankdealers,FXbrokers,andcentralbanks. banksprovidethecoreoftheFXmarket. Approximately100to200banksworldwidemakeamarketinforeignexchange,i.e.,theystandwillingtobuyorsellforeigncurrencyfortheirownaccount. internationalbanksservetheirretailclients,thebankcustomers,inconductingforeigncommerceormakinginternationalinvestmentinfinancialassetsthatrequiresforeignexchange.Non-bankdealerslargenon-bankfinancialinstitutions,suchasinvestmentbanks,mutualfunds,pensionfunds,andhedgefunds,whosesizeandfrequencyoftradesmakeitcost-effectivetoestablishtheirowndealingroomstotradedirectlyintheinterbankmarketfortheirforeignexchangeneeds.IM-1Mostinterbanktradesarespeculativeorarbitragetransactionswheremarketparticipantsattempttocorrectlyjudgethefuturedirectionofpricemovementsinonecurrencyversusanotherorattempttoprofitfromtemporarypricediscrepanciesincurrenciesbetweencompetingdealers.FXbrokersmatchdealerorderstobuyandsellcurrenciesforafee,butdonottakeapositionthemselves.Interbanktradersuseabrokerprimarilytodisseminateasquicklyaspossibleacurrencyquotetomanyotherdealers.Centralbankssometimesinterveneintheforeignexchangemarketinanattempttoinfluencethepriceofitscurrencyagainstthatofamajortradingpartner,oracountrythatit“fixes”or“pegs”itscurrencyagainst. Interventionistheprocessofusingforeigncurrencyreservestobuyone’sowncurrencyinordertodecreaseitssupplyandthusincreaseitsvalueintheforeignexchangemarket,oralternatively,sellingone’sowncurrencyforforeigncurrencyinordertoincreaseitssupplyandloweritsprice.Howareforeignexchangetransactionsbetweeninternationalbankssettled?Answer: Theinterbankmarketisanetworkofcorrespondentbankingrelationships,withcommercialbanksmaintainingdemanddepositaccountswithoneanother,calledcorrespondentaccounts. Thecorrespondentbankaccountnetworkallowsfortheefficientfunctioningoftheforeignexchangemarket. Asanexampleofhowthenetworkofcorrespondentbankaccountsfacilitiesinternationalforeignexchangetransactions,considera U.S.importerdesiringtopurchasemerchandiseinvoicedinguildersfromaDutchexporter. TheU.S.importerwillcontacthisbankandinquireabouttheexchangerate. IftheU.S.importeracceptstheofferedexchangerate,thebankwilldebittheU.S.importer’saccountforthepurchaseoftheDutchguilders. ThebankwillinstructitscorrespondentbankintheNetherlandstodebititscorrespondentbankaccounttheappropriateamountofguildersandtocredittheDutchexporter’sbankaccount. Theimporter’sbankwillthendebititsbookstooffsetthedebitofU.S.importer’saccount,reflectingthedecreaseinitscorrespondentbankaccountbalance.Whatismeantbyacurrencytradingatadiscountoratapremiumintheforwardmarket?Answer: Theforwardmarketinvolvescontractingtodayforthefuturepurchaseorsaleofforeignexchange. Theforwardpricemaybethesameasthespotprice,butusuallyitishigher(atapremium)orlower(atadiscount)thanthespotprice.IM-2WhydoesmostinterbankcurrencytradingworldwideinvolvetheU.S.dollar?Answer: Tradingincurrenciesworldwideisagainstacommoncurrencythathasinternationalappeal.ThatcurrencyhasbeentheU.S.dollarsincetheendofWorldWarII. However,theeuroandJapaneseyenhavestartedtobeusedmuch moreasinternationalcurrenciesinrecentyears. Moretradingwouldbeexceedinglycumbersomeanddifficulttomanageifeachtradermadeamarketagainstallothercurrencies.Banksfinditnecessarytoaccommodatetheirclients’needstobuyorsellFXforward, ininstancesforhedgingpurposes. Howcanthebankeliminatethecurrencyexposureithascreatedforitselfbyaccommodatingaclient’sforwardtransaction?Answer: Swaptransactionsprovideameansforthebanktomitigatethecurrencyexposureinaforwardtrade. Aswaptransactionisthesimultaneoussale(orpurchase)ofspotforeignexchangeagainstaforwardpurchase(orsale)ofanapproximatelyequalamountoftheforeigncurrency. Toillustrate,supposeabankcustomerwantstobuydollarsthreemonthsforwardagainstBritishpoundsterling. Thebankcanhandlethistradeforitscustomerandsimultaneouslyneutralizetheexchangerateriskinthetradebyselling(borrowed)Britishpoundsterlingspotagainstdollars.Thebankwilllendthedollarsforthreemonthsuntiltheyareneededtodeliveragainstthedollarsithassoldforward. TheBritishpoundsreceivedwillbeusedtoliquidatethesterlingloan.ACD/$banktraderiscurrentlyquotingasmallfigurebid-askof35-40,whentherestofthemarketistradingatCD1.3436-CD1.3441. Whatisimpliedaboutthetrader’sbeliefsbyhisprices?Answer: ThetradermustthinktheCanadiandollarisgoingtoappreciate againsttheU.S.dollarandthereforeheistryingtoincreasehisinventoryofCanadiandollarsbydiscouragingpurchasesofdollarsbystandingwillingtobuy$atonlyCD1.3435/$1.00and offeringtosellfrominventoryattheslightlylowerthanmarketpriceofCD1.3440/$1.00.Whatistriangulararbitrage? Whatisaconditionthatwillgiverisetoatriangulararbitrageopportunity?Answer: TriangulararbitrageistheprocessoftradingoutoftheU.S.dollarintoasecondcurrency,thentradingitforathirdcurrency,whichisinturntradedforU.S.dollars. ThepurposeistoearnIM-3arbitrageprofitviatradingfromthesecondtothethirdcurrencywhenthedirectexchangebetweenthetwoisnotinalignmentwiththecrossexchangerate.Most,butnotall,currencytransactionsgothroughthedollar.Certainbanksspecializeinmakingadirectmarketbetweennon-dollarcurrencies,pricingatanarrowerbid-askspreadthanthecross-ratespread.Nevertheless,theimpliedcross-ratebid-askquotationsimposeadisciplineonthenon-dollarmarketmakers.Iftheirdirectquotesarenotconsistentwiththecrossexchangerates,atriangulararbitrageprofitispossible.IM-4PROBLEMSUsingExhibit5.4,calculateacross-ratematrixfortheeuro,Swissfranc,Japaneseyen,andtheBritishpound.UsethemostcurrentAmericantermquotestocalculatethecross-ratessothatthetriangularmatrixresultingissimilartotheportionabovethediagonalinExhibit5.6.Solution: Thecross-rateformulawewanttouseis:S(j/k)=S($/k)/S($/j).Thetriangularmatrixwillcontain4x(4+1)/2=10elements.￥SF￡$Euro138.051.5481.68731.3112Japan(100)1.1214.4979.9498Switzerland.4440.8470U.K1.9077UsingExhibit5.4,calculatetheone-,three-,andsix-monthforwardcross-exchangeratesbetweenCanadiandollarandtheSwissfrancusingthemostcurrentquotations. Statetheforwardcross-ratesin“Canadian”terms.Solution: Theformulaswewanttouseare:N N F(CD/SF)=N N orN N F(CD/SF)=F(CD/$)/F(SF/$)N N WewillusethetopformulathatusesAmericantermforwardexchangerates.136F(CD/SF)=.8485/.8037=F(CD/SF)=.8517/.8043=F(CD/SF)=.8573/.8057=1.0640136IM-5Restatethefollowingone-,three-,andsix-monthoutrightforwardEuropeantermbid-askquotesforwardpoints.Spot1.3431-1.3436One-Month1.3432-1.3442Three-Month1.3448-1.3463Six-Month1.3488-1.3508Solution:One-MonthThree-MonthSix-Month

01-0617-2757-72Usingthespotandoutrightforwardquotesinproblem3,determinethecorrespondingbid-askspreadsinpoints.Solution:SpotOne-Month510Three-MonthSix-Month2015UsingExhibit5.4,calculatetheone-,three-,andsix-monthforwardpremiumordiscountfortheCanadiandollarversustheU.S.dollarusingAmericantermquotations.Forsimplicity,assumeeachmonthhas30days.Whatistheinterpretationofyourresults?Solution:Theformulawewanttouseis:1,CD3,CD6,CDN,CD f =[(F($/CD)-S($/CD/$)/S($/CD)]xf=[(.8037-.8037)/.8037]x360/30=.0000f=[(.8043-.8037)/.8037]x360/90=.0030f=[(.8057-.8037)/.8037]x360/180=1,CD3,CD6,CDN,CD ThepatternofforwardpremiumsindicatesthattheCanadiandollaristradingatanincreasingpremiumversustheU.S.dollar.Thatis,itbecomesmoreexpensive(inbothabsoluteandpercentageterms)tobuyaCanadiandollarforwardforU.S.dollarsthefurtherintothefutureonecontracts.IM-6UsingExhibit5.4,calculatetheone-,three-,andsix-monthforwardpremiumordiscountfortheU.S.dollarversustheBritishpoundusingEuropeantermquotations.Forsimplicity,assumeeachmonthhas30days.Whatistheinterpretationofyourresults?Solution:Theformulawewanttouseis:N,$ N,$ 1,$3,$6,$f=[(.5251-.5242)/.5242]x360/30=-.0023f=[(.5268-.5242)/.5242]x360/90=-.0198f=[(.5290-.5242)/.5242]x360/180=-.01831,$3,$6,$ThepatternofforwardpremiumsindicatesthattheBritishpoundistradingatadiscountversustheU.S.dollar.Thatis,itbecomesmoreexpensivetobuyaU.S.dollarforwardforBritishpounds(inabsolutebutnotpercentageterms)thefurtherintothefutureonecontracts.Giventhefollowinginformation,whataretheNZD/SGDcurrencyagainstcurrencybid-askquotations?BankQuotations

AmericanTerms EuropeanTermsBidAsk BidAskNewZealanddollar.7265.72721.3751 1.3765Singaporedollar.6135.61401.6287 1.6300Solution:Equation5.12fromthetextimpliesSb(NZD/SGD)=Sb($/SGD)xSb(NZD/$)=.6135x1.3765=.8445.Thereciprocal,1/Sb(NZD/SGD)=Sa(SGD/NZD)=1.1841.Analogously,itisimpliedthatSa(NZD/SGD)=Sa($/SGD)xSa(NZD/$)=.6140x1.3765=.8452.Thereciprocal,1/Sa(NZD/SGD)=Sb(SGD/NZD)=1.1832.Thus,theNZD/SGDbid-askspreadisNZD0.8445-NZD0.8452andtheSGD/NZDspreadisSGD1.1832-SGD1.1841.AssumeyouareatraderwithDeutscheBank. Fromthequotescreenonyourcomputerterminal,younoticethatDresdnerBankisquoting€0.7627/$1.00andCreditSuisseisofferingSF1.1806/$1.00.YoulearnthatUBSismakingadirectmarketbetweentheSwissfrancandtheeuro,withacurrent€/SFquoteof.6395. Showhowyoucanmakeatriangulararbitrageprofitbytradingattheseprices.(Ignorebid-askspreadsforthisproblem.) Assumeyouhave$5,000,000withwhichtoconductarbitrage. WhathappensifyouinitiallyselldollarsforSwissfrancs? What€/SFpricewilleliminatetriangulararbitrage?IM-7Solution: TomakeatriangulararbitrageprofittheDeutscheBanktraderwouldsell$5,000,000toDresdnerBankat€0.7627/$1.00. Thistradewouldyield€3,813,500=$5,000,000x.7627. DeutscheBanktraderwouldthenselltheeurosforSwissfrancstoUnionBankofSwitzerlandatapriceof€0.6395/SF1.00,yieldingSF5,963,253=€3,813,500/.6395. TheDeutscheBanktraderwillreselltheSwissfrancstoCreditSuissefor$5,051,036=SF5,963,253/1.1806,yieldingatriangulararbitrageprofitof$51,036.IftheDeutscheBanktraderinitiallysold$5,000,000forSwissfrancs,insteadofeuros,thetradewouldyieldSF5,903,000=$5,000,000x1.1806.TheSwissfrancswouldinturnbetradedforeurostoUBSfor€3,774,969=SF5,903,000x.6395.TheeuroswouldberesoldtoDresdnerBankfor$4,949,481=€3,774,969/.7627,oralossof$50,519. Thus,itisnecessarytoconductthetriangulararbitrageinthecorrectorder.TheS(€/SF)crossexchangerateshouldbe.7627/1.1806=.6460. Thisisanequilibriumratewhichatriangulararbitrageprofitwillnotexist. (Thestudentcandeterminethisforhimself.) AprofitresultsfromthetriangulararbitragewhendollarsarefirstsoldforeurosbecauseSwissfrancsarepurchasedforeurosattoolowarateincomparisontotheequilibriumcross-rate,i.e.,Swissfrancsarepurchasedforonly€0.6395/SF1.00insteadoftheno-arbitragerateof€0.6460/SF1.00. Similarly,whendollarsarefirstsoldforSwissfrancs,anarbitragelossresultsbecauseSwissfrancsaresoldforeurosattoolowarate,resultingintoofeweuros. Thatis,eachSwissfrancissoldfor€0.6395/SF1.00insteadofthehigherno-arbitragerateof€0.6460/SF1.00.Thecurrentspotexchangerateis$1.95/￡andthethree-monthforwardrateis$1.90/￡.Basedonyouranalysisoftheexchangerate,youareprettyconfidentthatthespotexchangeratewillbe$1.92/￡inthreemonths.Assumethatyouwouldliketobuyorsell￡1,000,000.Whatactionsdoyouneedtotaketospeculateintheforwardmarket? Whatistheexpecteddollarprofitfromspeculation?Whatwouldbeyourspeculativeprofitindollartermsifthespotexchangerateactuallyturnsouttobe$1.86/￡.IM-8Solution:Ifyoubelievethespotexchangeratewillbe$1.92/￡ inthreemonths,youshouldbuy￡1,000,000forwardfor$1.90/￡. Yourexpectedprofitwillbe:$20,000=￡1,000,000x($1.92-$1.90).Ifthespotexchangerateactuallyturnsouttobe$1.86/￡ inthreemonths,yourlossfromthepositionwillbe:-$40,000=￡1,000,000x($1.86-$1.90).OmniAdvisors,aninternationalpensionfundmanager,planstosellequitiesdenominatedinSwissFrancs(CHF)andpurchaseanequivalentamountofequitiesdenominatedinSouthAfricanRands(ZAR).Omniwillrealizenetproceedsof3millionCHFattheendof30daysandwantstoeliminatetheriskthattheZARwillappreciaterelativetotheCHFduringthis30-dayperiod.ThefollowingexhibitcurrentexchangeratesbetweentheZAR,CHF,andtheU.S.dollar(USD).CurrencyExchangeRatesZAR/USDZAR/USDCHF/USDCHF/USDMaturityBidAskBidAskSpot6.26816.27891.52821.534330-day6.25386.26411.52261.528590-day6.21046.22001.50581.5115DescribethecurrencytransactionthatOmnishouldundertaketoeliminatecurrencyoverthe30-dayperiod.Calculatethefollowing:TheCHF/ZARcross-currencyrateOmniwoulduseinvaluingtheSwissequityportfolio.ThecurrentvalueofOmni’sSwissequityportfolioinZAR.TheannualizedforwardpremiumordiscountatwhichtheZARistradingversustheCHF.IM-9CFAGuidelineAnswer:into

ToeliminatethecurrencyriskarisingfromthepossibilitythatZARwillappreciateagainsttheCHFoverthenext30-dayperiod,Omnishouldsell30-dayforwardagainst30-dayforwardZARdelivery(sell30-dayforwardCHFagainstUSDandbuy30-dayforwardZARagainstUSD).Thecalculationsareasfollows:Usingthecurrencycrossratesoftwoforwardforeigncurrenciesandthreecurrencies(CHF,ZAR,USD),theexchangewouldbeasfollows:--30dayforwardCHFaresoldforUSD. DollarsareboughtattheforwardsellingpriceofCHF1.5285=$1(doneatasksidebecausegoingfromcurrencydollars)--30dayforwardZARarepurchasedforUSD.DollarsaresimultaneouslysoldtopurchaseZARattherateof6.2538=$1(doneatthebidsidebecausegoingfromdollarsintocurrency)--Forevery1.5285CHFheld,6.2538ZARarereceived;thusthecrosscurrencyrateis1.5285CHF/6.2538ZAR=0.244411398.requiresCHFforAtthetimeofexecutionoftheforwardcontracts,thevalueofthe3millionCHFequityportfoliowouldbe3,000,000CHF/0.244411398=12,274,386.65ZAR.TocalculatetheannualizedpremiumordiscountoftheZARagainsttheCHFcomparisonofthespotsellingexchangeratetotheforwardsellingpriceZAR.Spotrate=1.5343CHF/6.2681ZAR=0.24477912030dayforwardaskrate1.5285CHF/6.2538ZAR=0.244411398Thepremium/discountformulais:[(forwardrate–spotrate)/spotrate]x(360/#daycontract)[(0.244411398–0.24477912)/0.24477912]x(360/30)=-1.8027126%=-1.80%discountZARtoCHFIM-10MINICASE: SHREWSBURYHERBALPRODUCTS,LTD.ShrewsburyHerbalProducts,locatedincentralEnglandclosetotheWelshborder,isanold-lineproducerofherbalteas,seasonings,andmedicines.ItsproductsaremarketedallovertheUnitedKingdomandinmanypartsofcontinentalEuropeaswell.ShrewsburyHerbalgenerallyinvoicesinBritishpoundsterlingwhenitsellstoforeigncustomersinordertoguardagainstadverseexchangeratechanges. Nevertheless,ithasjustreceivedanorderfromlargewholesalerincentralFrancefor￡320,000ofitsproducts,conditionalupondeliverybeingmadeinthreemonths’timeandtheorderinvoicedineuros.Shrewsbury’scontroller,EltonPeters,isconcernedwithwhetherthepoundwillappreciateversustheeurooverthenextthreemonths,thuseliminatingallormostoftheprofitwhentheeuroreceivableispaid. Hethinksthisisanunlikelypossibility,buthedecidestocontactthefirm’sbankerforsuggestionsabouthedgingtheexchangerateexposure.Mr.Peterslearnsfromthebankerthatthecurrentspotexchangerateis€/￡is€1.4537,thustheinvoiceamountshouldbe€465,184. Mr.Petersalsolearnsthatthethree-monthforwardratesforthepoundandtheeuroversustheU.S.dollarare$1.8990/￡1.00and$1.3154/€1.00,respectively. bankerofferstosetupaforwardhedgeforsellingtheeuroreceivableforpoundsterlingbasedonthe€/￡forwardcross-exchangerateimplicitintheforwardratesagainstthedollar.WhatwouldyoudoifyouwereMr.Peters?IM-11SuggestedSolutiontoShrewsburyHerbalProducts,Ltd.NotetoInstructor:Thiselementarycaseprovidesanintuitivelookathedgingexchangerateexposure.StudentsshouldnothavedifficultywithiteventhoughhedgingwillnotbeformallydiscusseduntilCha