国际财务管理课后习题答案chapterWord文件下载.docx

1、 The forward exchange rate will be an unbiased predictor of the future spot rate if （I） the risk premium is insignificant and （ii） foreign exchange markets are informationally efficient. 4. Explain the purchasing power parity, both the absolute and relative versions. What causes the deviations from

2、the purchasing power parity? The absolute version of purchasing power parity （PPP）: S = P$/P. The relative version is: e = $ - PPP can be violated if there are barriers to international trade or if people in different countries have different consumption taste. PPP is the law of one price applied to

3、 a standard consumption basket. 5. Discuss the implications of the deviations from the purchasing power parity for countries competitive positions in the world market. If exchange rate changes satisfy PPP, competitive positions of countries will remain unaffected following exchange rate changes. Oth

4、erwise, exchange rate changes will affect relative competitiveness of countries. If a countrys currency appreciates （depreciates） by more than is warranted by PPP, that will hurt （strengthen） the countrys competitive position in the world market. 6. Explain and derive the international Fisher effect

5、. The international Fisher effect can be obtained by combining the Fisher effect and the relative version of PPP in its expectational form. Specifically, the Fisher effect holds that E（$） = I$ - $, E（） = I - Assuming that the real interest rate is the same between the two countries, i.e., $ = , and

6、substituting the above results into the PPP, i.e., E（e） = E（$）- E（）, we obtain the international Fisher effect: E（e） = I $ - I 7. Researchers found that it is very difficult to forecast the future exchange rates more accurately than the forward exchange rate or the current spot exchange rate. How wo

7、uld you interpret this finding? This implies that exchange markets are informationally efficient. Thus, unless one has private information that is not yet reflected in the current market rates, it would be difficult to beat the market. 8. Explain the random walk model for exchange rate forecasting.

8、Can it be consistent with the technical analysis? The random walk model predicts that the current exchange rate will be the best predictor of the future exchange rate. An implication of the model is that past history of the exchange rate is of no value in predicting future exchange rate. The model t

9、hus is inconsistent with the technical analysis which tries to utilize past history in predicting the future exchange rate. *9. Derive and explain the monetary approach to exchange rate determination. The monetary approach is associated with the Chicago School of Economics. It is based on two tenets

10、: purchasing power parity and the quantity theory of money. Combing these two theories allows for stating, say, the $/ spot exchange rate as: S（$/） = （M$/M）（V$/V）（y/y$） , where M denotes the money supply, V the velocity of money, and y the national aggregate output. The theory holds that what matter

11、s in exchange rate determination are: 1. The relative money supply, 2. The relative velocities of monies, and 3. The relative national outputs. 10. CFA question: 1997, Level 3. A. Explain the following three concepts of purchasing power parity （PPP）: a. The law of one price. b. Absolute PPP. c. Rela

12、tive PPP. B. Evaluate the usefulness of relative PPP in predicting movements in foreign exchange rates on: a. Short-term basis （for example, three months） b. Long-term basis （for example, six years） A. a. The law of one price （LOP） refers to the international arbitrage condition for the standard con

13、sumption basket. LOP requires that the consumption basket should be selling for the same price in a given currency across countries. A. b. Absolute PPP holds that the price level in a country is equal to the price level in another country times the exchange rate between the two countries. A. c. Rela

14、tive PPP holds that the rate of exchange rate change between a pair of countries is about equal to the difference in inflation rates of the two countries. B. a. PPP is not useful for predicting exchange rates on the short-term basis mainly because international commodity arbitrage is a time-consumin

15、g process. B. b. PPP is useful for predicting exchange rates on the long-term basis. PROBLEMS 1. Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The six-month interest rate is 8 percent per annum in the United States and 6 percent per annum in Ge

16、rmany. Currently, the spot exchange rate is 1.01 per dollar and the six-month forward exchange rate is 0.99 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he/she invest to maximize the return? The market conditions are summarized as follows: I$ = 4%; i = 3.5%;

17、 S = 1.01/$; F = 0.99/$. If $100,000,000 is invested in the U.S., the maturity value in six months will be $104,000,000 = $100,000,000 （1 + .04）. Alternatively, $100,000,000 can be converted into euros and invested at the German interest rate, with the euro maturity value sold forward. In this case

18、the dollar maturity value will be $105,590,909 = （$100,000,000 x 1.01）（1 + .035）（1/0.99） Clearly, it is better to invest $100,000,000 in Germany with exchange risk hedging. 2. While you were visiting London, you purchased a Jaguar for 35,000, payable in three months. You have enough cash at your ban

19、k in New York City, which pays 0.35% interest per month, compounding monthly, to pay for the car. Currently, the spot exchange rate is $1.45/ and the three-month forward exchange rate is $1.40/. In London, the money market interest rate is 2.0% for a three-month investment. There are two alternative

20、 ways of paying for your Jaguar. （a） Keep the funds at your bank in the U.S. and buy 35,000 forward. （b） Buy a certain pound amount spot today and invest the amount in the U.K. for three months so that the maturity value becomes equal to 35,000. Evaluate each payment method. Which method would you p

21、refer? Why? Solution: The problem situation is summarized as follows: A/P = 35,000 payable in three months iNY = 0.35%/month, compounding monthly iLD = 2.0% for three months S = $1.45/; F = $1.40/ Option a: When you buy 35,000 forward, you will need $49,000 in three months to fulfill the forward con

22、tract. The present value of $49,000 is computed as follows: $49,000/（1.0035）3 = $48,489. Thus, the cost of Jaguar as of today is $48,489. Option b: The present value of 35,000 is 34,314 = 35,000/（1.02）. To buy 34,314 today, it will cost $49,755 = 34,314x1.45. Thus the cost of Jaguar as of today is $

23、49,755. You should definitely choose to use “option a”, and save $1,266, which is the difference between $49,755 and $48489. 3. Currently, the spot exchange rate is $1.50/ and the three-month forward exchange rate is $1.52/. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per an

24、num in the U.K. Assume that you can borrow as much as $1,500,000 or 1,000,000. a. Determine whether the interest rate parity is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit. c. Explain how t

25、he IRP will be restored as a result of covered arbitrage activities. Lets summarize the given data first: S = $1.5/ F = $1.52/ I$ = 2.0%; I = 1.45% Credit = $1,500,000 or a. （1+I$） = 1.02 （1+I）（F/S） = （1.0145）（1.52/1.50） = 1.0280 Thus, IRP is not holding exactly. b. （1） Borrow $1,500,000; repayment

26、will be $1,530,000. （2） Buy 1,000,000 spot using $1,500,000. （3） Invest 1,000,000 at the pound interest rate of 1.45%; maturity value will be 1,014,500. （4） Sell 1,014,500 forward for $1,542,040 Arbitrage profit will be $12,040 c. Following the arbitrage transactions described above, The dollar inte

27、rest rate will rise; The pound interest rate will fall; The spot exchange rate will rise; The forward exchange rate will fall. These adjustments will continue until IRP holds. 4. Suppose that the current spot exchange rate is 0.80/$ and the three-month forward exchange rate is 0.7813/$. The three-mo

28、nth interest rate is 5.6 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or 800,000. a. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine the size of your arbitrage profit. b. Assume that you want to realize profit in