answer questions in attached
QUESTION 1
Arbitrage means:
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| Making positive profits on avearge | |
|
| Making positive profits for sure | |
|
| Making positive profits with 95% chance or above |
10 points
QUESTION 2
Suppose Exchange rate in NY is 100yen/$ and in London is 120yen/$. Which of the following is an arbitrage opportunity:
|
| Buy $ in NY and sell it in London | |
|
| Buy yen in NY and sell it in London |
10 points
QUESTION 3
Suppose exchange rates are 6yen/$, 9yen/euro, and 0.6euro/$. Which of the following is an arbitrage opportunity
|
| Exchange $ for yen, then exchange yen for euro, finally exchange euro for $ | |
|
| Exchange yen for $, then exchange $ for euro, finally exchange euro for yen |
10 points
QUESTION 4
CIP always holds as long as there is no arbitrage opportunity
True
False
10 points
QUESTION 5
UIP always holds as long as there is no arbitrage opportunity.
True
False
10 points
QUESTION 6
UIP assumes that investors are risk-neutral.
True
False
10 points
QUESTION 7
CIP assumes that investors are risk-neutral.
True
False
10 points
QUESTION 8
Suppose the 1-year interest rate is 0% in US and 5% in Mexico. The current exchange rate between dollar and peso is 20peso/$. What is the 1-year forward rate between dollar and peso:
|
| 21 peso per $ | |
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| 10 peso per $ | |
|
| 25 peso per $ | |
|
| 15 peso per $ |
10 points
QUESTION 9
A FX trader has $1 million to trade with the following information: the current spot X-rate is 106yen/$, the 180-day forward rate is 103.5yen/$, the dollar interest rate is 8% per year (APR) and the Yen interest rate is 4% per year (APR). How much profit can this FX trader make?
|
| $0 | |
|
| $2319 | |
|
| $6957 | |
|
| $4638 |
10 points
QUESTION 10
Which of the following is not a potential explanation of the Peso Problem:
|
| CIP fails to hold | |
|
| Expected exchange rate appreciation differs from actual rate of appreciation | |
|
| Investors are risk-averse |
