1、国际财务管理课后习题答案chapter5国际财务管理课后习题答案chapter-5CHAPTER 5 THE MARKET FOR FOREIGN EXCHANGESUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMSQUESTIONS1. Give a full definition of the market for foreign exchange.Answer: Broadly defined, the foreign exchange (FX) market encompasses the co
2、nversion of purchasing power from one currency into another, bank deposits of foreign currency, the extension of credit denominated in a foreign currency, foreign trade financing, and trading in foreign currency options and futures contracts.2. What is the difference between the retail or client mar
3、ket and the wholesale or interbank market for foreign exchange?Answer: The market for foreign exchange can be viewed as a two-tier market. One tier is the wholesale or interbank market and the other tier is the retail or client market. International banks provide the core of the FX market. They stan
4、d willing to buy or sell foreign currency for their own account. These international banks serve their retail clients, corporations or individuals, in conducting foreign commerce or making international investment in financial assets that requires foreign exchange. Retail transactions account for on
5、ly about 14 percent of FX trades. The other 86 percent is interbank trades between international banks, or non-bank dealers large enough to transact in the interbank market.3. Who are the market participants in the foreign exchange market?Answer: The market participants that comprise the FX market c
6、an be categorized into five groups: international banks, bank customers, non-bank dealers, FX brokers, and central banks. International banks provide the core of the FX market. Approximately 100 to 200 banks worldwide make a market in foreign exchange, i.e., they stand willing to buy or sell foreign
7、 currency for their own account. These international banks serve their retail clients, the bank customers, in conducting foreign commerce or making international investment in financial assets that requires foreign 6. Why does most interbank currency trading worldwide involve the U.S. dollar?Answer:
8、 Trading in currencies worldwide is against a common currency that has international appeal. That currency has been the U.S. dollar since the end of World War II. However, the euro and Japanese yen have started to be used much more as international currencies in recent years. More importantly, tradi
9、ng would be exceedingly cumbersome and difficult to manage if each trader made a market against all other currencies.7. Banks find it necessary to accommodate their clients needs to buy or sell FX forward, in many instances for hedging purposes. How can the bank eliminate the currency exposure it ha
10、s created for itself by accommodating a clients forward transaction?Answer: Swap transactions provide a means for the bank to mitigate the currency exposure in a forward trade. A swap transaction is the simultaneous sale (or purchase) of spot foreign exchange against a forward purchase (or sale) of
11、an approximately equal amount of the foreign currency. To illustrate, suppose a bank customer wants to buy dollars three months forward against British pound sterling. The bank can handle this trade for its customer and simultaneously neutralize the exchange rate risk in the trade by selling (borrow
12、ed) British pound sterling spot against dollars. The bank will lend the dollars for three months until they are needed to deliver against the dollars it has sold forward. The British pounds received will be used to liquidate the sterling loan.8. A CD/$ bank trader is currently quoting a small figure
13、 bid-ask of 35-40, when the rest of the market is trading at CD1.3436-CD1.3441. What is implied about the traders beliefs by his prices?Answer: The trader must think the Canadian dollar is going to appreciate against the U.S. dollar and therefore he is trying to increase his inventory of Canadian do
14、llars by discouraging purchases of U.S. dollars by standing willing to buy $ at only CD1.3435/$1.00 and offering to sell from inventory at the slightly lower than market price of CD1.3440/$1.00.9. What is triangular arbitrage? What is a condition that will give rise to a triangular arbitrage opportu
15、nity?Answer: Triangular arbitrage is the process of trading out of the U.S. dollar into a second currency, then trading it for a third currency, which is in turn traded for U.S. dollars. The purpose is to earn an arbitrage profit via trading from the second to the third currency when the direct exch
16、ange between the two is not in alignment with the cross exchange rate.Most, but not all, currency transactions go through the dollar. Certain banks specialize in making a direct market between non-dollar currencies, pricing at a narrower bid-ask spread than the cross-rate spread. Nevertheless, the i
17、mplied cross-rate bid-ask quotations impose a discipline on the non-dollar market makers. If their direct quotes are not consistent with the cross exchange rates, a triangular arbitrage profit is possible.PROBLEMS1. Using Exhibit 5.4, calculate a cross-rate matrix for the euro, Swiss franc, Japanese
18、 yen, and the British pound. Use the most current American term quotes to calculate the cross-rates so that the triangular matrix resulting is similar to the portion above the diagonal in Exhibit 5.6.Solution: The cross-rate formula we want to use is:S(j/k) = S($/k)/S($/j).The triangular matrix will
19、 contain 4 x (4 + 1)/2 = 10 elements.SF$Euro138.051.5481.68731.3112Japan (100)1.1214.4979.9498Switzerland.4440.8470U.K1.90772. Using Exhibit 5.4, calculate the one-, three-, and six-month forward cross-exchange rates between the Canadian dollar and the Swiss franc using the most current quotations.
20、State the forward cross-rates in “Canadian” terms.Solution: The formulas we want to use are:FN(CD/SF) = FN($/SF)/FN($/CD)orFN(CD/SF) = FN(CD/$)/FN(SF/$).We will use the top formula that uses American term forward exchange rates.F1(CD/SF) = .8485/.8037 = 1.0557 F3(CD/SF) = .8517/.8043 = 1.0589F6(CD/S
21、F) = .8573/.8057 = 1.06403. Restate the following one-, three-, and six-month outright forward European term bid-ask quotes in forward points.Spot 1.3431-1.3436One-Month 1.3432-1.3442Three-Month 1.3448-1.3463Six-Month 1.3488-1.3508Solution: One-Month 01-06Three-Month 17-27Six-Month 57-724. Using the
22、 spot and outright forward quotes in problem 3, determine the corresponding bid-ask spreads in points. Solution: Spot 5One-Month 10Three-Month 15Six-Month 205. Using Exhibit 5.4, calculate the one-, three-, and six-month forward premium or discount for the Canadian dollar versus the U.S. dollar usin
23、g American term quotations. For simplicity, assume each month has 30 days. What is the interpretation of your results?Solution: The formula we want to use is:fN,CD = (FN($/CD) - S($/CD/$)/S($/CD) x 360/Nf1,CD = (.8037 - .8037)/.8037 x 360/30 = .0000f3,CD = (.8043 - .8037)/.8037 x 360/90 = .0030f6,CD
24、 = (.8057 - .8037)/.8037 x 360/180 = .0050The pattern of forward premiums indicates that the Canadian dollar is trading at an increasing premium versus the U.S. dollar. That is, it becomes more expensive (in both absolute and percentage terms) to buy a Canadian dollar forward for U.S. dollars the fu
25、rther into the future one contracts.6. Using Exhibit 5.4, calculate the one-, three-, and six-month forward premium or discount for the U.S. dollar versus the British pound using European term quotations. For simplicity, assume each month has 30 days. What is the interpretation of your results?Solut
26、ion: The formula we want to use is:fN,$ = (FN (/$) - S(/$)/S(/$) x 360/Nf1,$ = (.5251 - .5242)/.5242 x 360/30 = -.0023f3,$ = (.5268 - .5242)/.5242 x 360/90 = -.0198f6,$ = (.5290 - .5242)/.5242 x 360/180 = -.0183The pattern of forward premiums indicates that the British pound is trading at a discount
27、 versus the U.S. dollar. That is, it becomes more expensive to buy a U.S. dollar forward for British pounds (in absolute but not percentage terms) the further into the future one contracts.7. Given the following information, what are the NZD/SGD currency against currency bid-ask quotations? American
28、 Terms European Terms Bank Quotations Bid Ask Bid AskNew Zealand dollar .7265 .7272 1.3751 1.3765Singapore dollar .6135 .6140 1.6287 1.6300Solution: Equation 5.12 from the text implies Sb(NZD/SGD) = Sb($/SGD) x Sb(NZD/$) = .6135 x 1.3765 = .8445. The reciprocal, 1/Sb(NZD/SGD) = Sa(SGD/NZD) = 1.1841.
29、 Analogously, it is implied that Sa(NZD/SGD) = Sa($/SGD) x Sa(NZD/$) = .6140 x 1.3765 = .8452. The reciprocal, 1/Sa(NZD/SGD) = Sb(SGD/NZD) = 1.1832. Thus, the NZD/SGD bid-ask spread is NZD0.8445-NZD0.8452 and the SGD/NZD spread is SGD1.1832-SGD1.1841.8. Assume you are a trader with Deutsche Bank. Fr
30、om the quote screen on your computer terminal, you notice that Dresdner Bank is quoting 0.7627/$1.00 and Credit Suisse is offering SF1.1806/$1.00. You learn that UBS is making a direct market between the Swiss franc and the euro, with a current /SF quote of .6395. Show how you can make a triangular
31、arbitrage profit by trading at these prices. (Ignore bid-ask spreads for this problem.) Assume you have $5,000,000 with which to conduct the arbitrage. What happens if you initially sell dollars for Swiss francs? What /SF price will eliminate triangular arbitrage?Solution: To make a triangular arbit
32、rage profit the Deutsche Bank trader would sell $5,000,000 to Dresdner Bank at 0.7627/$1.00. This trade would yield 3,813,500= $5,000,000 x .7627. The Deutsche Bank trader would then sell the euros for Swiss francs to Union Bank of Switzerland at a price of 0.6395/SF1.00, yielding SF5,963,253 = 3,813,500/.6395. The Deutsche Bank trader will resell the Swiss francs to Credit Suisse for $5,051,036 = SF5,963,253/1.1806, yielding a tria
