国际财务管理课后习题答案第六章.docx

1、国际财务管理课后习题答案第六章国际财务管理课后习题答案(第六章)CHAPTER 6 INTERNATIONAL PARITY RELATIONSHIPSSUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Give a full definition of arbitrage.Answer: Arbitrage can be defined as the act of simultaneously buying and selling the same or equivalent a

2、ssets or commodities for the purpose of making certain, guaranteed profits.2. Discuss the implications of the interest rate parity for the exchange rate determination.Answer: Assuming that the forward exchange rate is roughly an unbiased predictor of the future spot rate, IRP can be written as: S =

3、(1 + I)/(1 + I$)ESt+1|It. The exchange rate is thus determined by the relative interest rates, and the expected future spot rate, conditional on all the available information, It, as of the present time. One thus can say that expectation is self-fulfilling. Since the information set will be continuo

4、usly updated as news hit the market, the exchange rate will exhibit a highly dynamic, random behavior. 3. Explain the conditions under which the forward exchange rate will be an unbiased predictor of the future spot exchange rate.Answer: The forward exchange rate will be an unbiased predictor of the

5、 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 the purchasing power parity?Answer: The absolute version of pur

6、chasing 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 a standard consumption basket.8. Explain the random wal

7、k model for exchange rate forecasting. Can it be consistent with the technical analysis?Answer: 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 i

8、n predicting future exchange rate. The model thus 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.Answer: The monetary approach is associated with the Ch

9、icago School of Economics. It is based on two tenets: 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 ag

10、gregate output. The theory holds that what matters in exchange rate determination are:1. The relative money supply,2. The relative velocities of monies, and3. The relative national outputs.10. CFA question: 1997, Level 3.A. Explain the following three concepts of purchasing power parity (PPP): a. Th

11、e law of one price. b. Absolute PPP. c. Relative 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) Answer:A. a. The law of one price (LOP) refers to the intern

12、ational arbitrage condition for the standard consumption 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 exc

13、hange rate between the two countries. A. c. Relative 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 inte

14、rnational commodity arbitrage is a time-consuming process.B. b. PPP is useful for predicting exchange rates on the long-term basis.PROBLEMS1. 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 th

15、e United States and 6 percent per annum in Germany. 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 a

16、re summarized as follows: I$ = 4%; i = 3.5%; 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

17、maturity value sold forward. In this case 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

18、 months. You have enough cash at your bank 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-mo

19、nth investment. There are two alternative 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 p

20、ayment method. Which method would you prefer? 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

21、three months to fulfill the forward contract. 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. Thu

22、s the cost of Jaguar as of today is $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% p

23、er annum in the U.S. and 5.8% per annum 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

24、 arbitrage profit.c. Explain how the IRP will be restored as a result of covered arbitrage activities.Solution: Lets summarize the given data first: S = $1.5/; F = $1.52/; I$ = 2.0%; I = 1.45% Credit = $1,500,000 or 1,000,000.a. (1+I$) = 1.02 (1+I)(F/S) = (1.0145)(1.52/1.50) = 1.0280Thus, IRP is not

25、 holding exactly.b. (1) Borrow $1,500,000; repayment 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 ar

26、bitrage transactions described above, The dollar interest 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-mo

27、nth forward exchange rate is 0.7813/$. The three-month 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 w

28、ant 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 terms of euros. Show the covered arbitrage process and determine the arbitrage profit in euros.Solution: a. (1+ i $) = 1.014 (F/S) (1+ i ) = 1.053. Thus, one

29、has to borrow dollars and invest in euros to make arbitrage profit.1. Borrow $1,000,000 and repay $1,014,000 in three months.2. Sell $1,000,000 spot for 1,060,000.3. Invest 1,060,000 at the euro interest rate of 1.35 % for three months and receive 1,074,310 at maturity.4. Sell 1,074,310 forward for

30、$1,053,245.Arbitrage profit = $1,053,245 - $1,014,000 = $39,245.b. Follow the first three steps above. But the last step, involving exchange risk hedging, will be different. 5. Buy $1,014,000 forward for 1,034,280.Arbitrage profit = 1,074,310 - 1,034,280 = 40,0305. In the issue of October 23, 1999,

31、the Economist reports that the interest rate per annum is 5.93% in the United States and 70.0% in Turkey. Why do you think the interest rate is so high in Turkey? Based on the reported interest rates, how would you predict the change of the exchange rate between the U.S. dollar and the Turkish lira?

32、Solution: A high Turkish interest rate must reflect a high expected inflation in Turkey. According to international Fisher effect (IFE), we have E(e) = i$ - iLira = 5.93% - 70.0% = -64.07%The Turkish lira thus is expected to depreciate against the U.S. dollar by about 64%.6. As of November 1, 1999, the exchange rate between the Brazilian real and U.S. dollar is R$1.95/$. The consensus fore