Currency Risk Test

The aftercited scenario relates to Q1-5. R2F is anticipateing a acknowledgment of $650,000 from a USA customer in indelicate months' totality. The order has succeeded a eager blame of £1.88/$. The exoteric disfigurement blame in the bargain is £1.65/$. R2F can succeed a short-totality hypothecation of $ at 5% per annum. The bearing notice is as follows: Short totality $ deposit 3% per annum Short totality $ attributeing 7% per annum Q1. Weigh the proceeds using Eager bargain hedging? (MCQ) £323,126 £329,281 £345,745 £419,355 (2 marks) Q2. Weigh the proceeds using Money bargain hedging (to unswerving £)? (FIB) 3511551333500£ (2 marks) Q3. Which of the aftercited is not a way to bring performance miss? (MCQ) R2F succeed chaffer in pounds R2F succeed produce a bank totality in the USA R2F succeed net off the acknowledgments after a while a supplier acquittal to made in China R2F should anticipate that there is no performance miss induction no action (2 marks) Q4. If R2F's emulator in a divergent empire has a inferior diversify blame, what bark of impression succeed it keep on R2F? (MCQ) Currency impression Indirect impression Tax impression Direct impression (2 marks) Q5. R2F is reserved to hedge using derivatives for the primary totality. Which of the aftercited is the most consume-effective? (MCQ) Futures Options Forward curtail Swaps (2 marks) The aftercited scenario relates to Q6-10. Gaffs Co is located in China; the order has a hypothecation in dollars at a unroving share blame. The grant incurvation has indicated an upcoming recession which succeed growth the dollar share blame. Gaffs Co has to pay an share of $30,000 in six months' totality. The notice is as follows: Spot Blame $/¥ $10.2 - $10.6 6 month Eager blame $/¥ $10.35 - $10.94 Borrow Deposit Dollar 8% per annum 6.3% per annum Yen 3.3% per annum 1.2% per annum Q6. Weigh the acquittal to be made using Eager bargain hedging (to unswerving hundred)? (FIB) 3816356096000¥ (2 marks) Q7. Select the misspend non-interference. (HA) A eager curtail is very up-hill to use ; recognize TRUE FALSE A eager curtail can be permanent using any aggregate TRUE FALSE (2 marks) Q8. Weigh the aggregate to be remunerated using Money bargain hedging? (MCQ) ¥47 ¥2,744 ¥2,851 ¥2,898 (2 marks) Q9. Gaffs Co is regarding a vogue swap. Which of the aftercited assertion is emend? (MCQ) The curtail cannot be tailored The emend limit of acknowledgment/acquittal is notorious The curtail is requireive Transaction consume is very expensive (2 marks) Q10. What succeed be the gain/loss if the acquittal is control and remunerated presently compared to eager curtail? (MCQ) ¥41 (Loss) ¥158 (Loss) ¥41 (Gain) ¥158 (Gain) (2 marks) INTEREST RISK The aftercited scenario relates to Q11-15. Tito Co is looking into the financing non-interferences to succeed a new ancillary. Tito Co has estimated that they succeed insufficiency to attribute the USA $200,000 in two months' totality for six months. The order is unquiet encircling the fluctuations in share blames and is regarding hedging this miss. Tito Co has been advised to infer using a eager blame conformity. The FRA's are as follows: 2 months V 6 months 2.1% - 3.6% 2 months V 8 months 5% - 4.7% Q11. What succeed be the share acquittal on the bargain share blame of 4%? (MCQ) $700 $3,600 $4,000 $4,700 (2 marks) Q12. What succeed be the refundable percentage if the bargain share blame is 6%? (MCQ) 1.3% 2.4% 3.6.% 4.7%(2 marks) Q13. The six-month eager blame is $1.515/€. The topical share blame is 4% ; the exotic share blame is 6%. Weigh the six months' eager blame? (MCQ) $1.45/€ $1.5/€ $1.54/€ $1.63/€ (2 marks) Q14. Select the misspend non-interference. (HA) Purchasing jurisdiction correspondence scheme tends to stop gentleman in the covet-totality TRUE FALSE Inflation blames can be used to weigh anticipateed coming disfigurement blames TRUE FALSE Current disfigurement blames are naturalized on share blames TRUE FALSE (2 marks) Q15. Which of the aftercited assertions is/are gentleman in kinsman to eager blame conformitys? (MRQ) They are up-hill to succeed for periods balance one year FRA may not shield the attributeer from irrelevant changes in the bargain FRA's are balance the contrary curtails (2 marks) ANSWERS Q1. C Forward bargain hedge (receipt) = $650,000 ÷ 1.88 = £345,745 Q2. £396,522 Borrow = $650,000 ÷ [1 + (5% × 4/12)] = $639,344 Convert = $639,344 ÷ 1.65 = £387,481 Deposit share = [£387,481 × (7% × 4/12)] = £9,041 Total acknowledgments = £387,481 + £9,041 = £396,522 Q3. C All other non-interferences are emend to chaffer after a while performance miss. The order can singly net off if the vogue/ aggregate/ timing all are identical. Q4. B Indirect impression as emulator value succeed at-last subside for the customers ; succeed remove to emulator calling rather than staying at R2F. Q5. D Swaps keep either professed or no consume. Options keep haughty bribe consume. Futures keep primal edge consume but are refundable. A eager curtail is not a derivative but has a performance consume. Q6. ¥2,900 Forward bargain hedge (payment) = $30,000 ÷ 10.35 = ¥2,899 Q7. A eager curtail is very up-hill to use ; recognize FALSE A eager curtail can be permanent using any aggregate TRUE The eager curtail is lenient to use ; recognize. The blame used is unroving and any aggregate can be permanent using the locked blame. Q8. D Deposit = $30,000 ÷ [1 + (6.3% × 6/12)] = $29,084 Convert = $29,084 ÷ 10.2 = ¥2,851 Borrow share = [¥2,851 × (3.3% × 6/12)] = ¥47 Total acquittals = ¥2,851 + ¥47 = ¥2,898 Q9. C The curtail can be tailored, The emend limit of acknowledgment/acquittal is not notorious, can be executed anytime The curtail is requireive, (Correct) Transaction consume is either professed or nothing Q10. A Spot (payment) = $30,000 ÷ 10.2 = ¥2,941 Difference = ¥2,941 - ¥2,900 = ¥41 (Loss) Q11. C Interest Acquittal = [200,000 × (4% × 6/12)] = $4,000 Q12. A The bargain share blame is 6% ; The FRA unroving share blame is 4.7%. The refundable share blame = 6% - 4.7% = 1.3% Q13. B Calculated using Share blame correspondence scheme = Spot blame = $X × 1+(6% × 612)1+(4% ×612) = $1.515 X= $1.5/€ Q14. Purchasing jurisdiction correspondence scheme tends to stop gentleman in the covet-totality TRUE Inflation blames can be used to weigh anticipateed coming disfigurement blames TRUE Exoteric disfigurement blames are naturalized on share blames FALSE Purchasing jurisdiction correspondence scheme is gentleman in a covet totality as it is used to forecast coming diversify blames and gives coming disfigurement blames. Share blame correspondence scheme uses share blames to weigh eager blames. Q15. They are up-hill to succeed for periods balance one year, it is a constraint of FRA's hereafter (Correct) FRA may not shield the attributeer from irrelevant changes in the bargain, it shields the attributeer from irrelevant bargain share blames hereafter (Incorrect) FRA's are balance the contrary curtails (Correct)