Currency Risk Test

The aftercited scenario relates to Q1-5. R2F is rely-oning a voucher of $650,000 from a USA customer in impure months' period. The audience has earned a ready admonish of £1.88/$. The general defacement admonish in the trade is £1.65/$. R2F can earn a short-expression advance of $ at 5% per annum. The divert instruction is as follows: Short expression $ safety 3% per annum Short expression $ hypothecateing 7% per annum Q1. Count the pay using Ready trade hedging? (MCQ) £323,126 £329,281 £345,745 £419,355 (2 marks) Q2. Count the pay using Money trade hedging (to nearest £)? (FIB) 3511551333500£ (2 marks) Q3. Which of the aftercited is not a way to narrow profession induce? (MCQ) R2F gain negotiate in pounds R2F gain produce a bank totality in the USA R2F gain net off the vouchers delay a supplier cancelment to made in China R2F should rely-on that there is no profession induce preliminary no action (2 marks) Q4. If R2F's emulator in a incongruous country has a inferior change admonish, what husk of application gain it keep on R2F? (MCQ) Currency application Indirect application Tax application Direct application (2 marks) Q5. R2F is trying to hedge using derivatives for the primitive period. Which of the aftercited is the most absorb-effective? (MCQ) Futures Options Forward reduce Swaps (2 marks) The aftercited scenario relates to Q6-10. Gaffs Co is located in China; the audience has a advance in dollars at a unroving profit admonish. The comply deflexion has indicated an upcoming recession which gain acception the dollar profit admonish. Gaffs Co has to pay an profit of $30,000 in six months' period. The instruction is as follows: Spot Admonish $/¥ $10.2 - $10.6 6 month Ready admonish $/¥ $10.35 - $10.94 Borrow Deposit Dollar 8% per annum 6.3% per annum Yen 3.3% per annum 1.2% per annum Q6. Count the cancelment to be made using Ready trade hedging (to nearest hundred)? (FIB) 3816356096000¥ (2 marks) Q7. Select the divert non-interference. (HA) A ready reduce is very involved to use ; imply TRUE FALSE A ready reduce can be unroving using any total TRUE FALSE (2 marks) Q8. Count the total to be compensated using Money trade hedging? (MCQ) ¥47 ¥2,744 ¥2,851 ¥2,898 (2 marks) Q9. Gaffs Co is because a vogue swap. Which of the aftercited assertion is set-right? (MCQ) The reduce cannot be tailored The suitable bound of voucher/cancelment is unconcealed The reduce is restrictive Transaction absorb is very expensive (2 marks) Q10. What gain be the gain/loss if the cancelment is transfer and compensated directly compared to ready reduce? (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 earn a new ancillary. Tito Co has estimated that they gain insufficiency to hypothecate the USA $200,000 in two months' period for six months. The audience is concerned encircling the fluctuations in profit admonishs and is because hedging this induce. Tito Co has been advised to revolve using a ready admonish compact. 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 gain be the profit cancelment on the trade profit admonish of 4%? (MCQ) $700 $3,600 $4,000 $4,700 (2 marks) Q12. What gain be the refundable percentage if the trade profit admonish is 6%? (MCQ) 1.3% 2.4% 3.6.% 4.7%(2 marks) Q13. The six-month ready admonish is $1.515/€. The persomal profit admonish is 4% ; the irrelevant profit admonish is 6%. Count the six months' ready admonish? (MCQ) $1.45/€ $1.5/€ $1.54/€ $1.63/€ (2 marks) Q14. Select the divert non-interference. (HA) Purchasing energy correspondence speculation tends to trust penny in the covet-expression TRUE FALSE Inflation admonishs can be used to count rely-oned coming defacement admonishs TRUE FALSE Current defacement admonishs are based on profit admonishs TRUE FALSE (2 marks) Q15. Which of the aftercited assertions is/are penny in homogeneity to ready admonish compacts? (MRQ) They are involved to earn for periods aggravate one year FRA may not save the hypothecateer from inappropriate changes in the trade FRA's are aggravate the contrary reduces (2 marks) ANSWERS Q1. C Forward trade 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 profit = [£387,481 × (7% × 4/12)] = £9,041 Total vouchers = £387,481 + £9,041 = £396,522 Q3. C All other non-interferences are set-right to negotiate delay profession induce. The audience can solely net off if the vogue/ total/ timing all are selfsame. Q4. B Indirect application as emulator figure gain at-last lessen for the customers ; gain shelve to emulator profession rather than staying at R2F. Q5. D Swaps keep either suppositious or no absorb. Options keep excellent bounty absorb. Futures keep judicious extremity absorb but are refundable. A ready reduce is not a derivative but has a profession absorb. Q6. ¥2,900 Forward trade hedge (payment) = $30,000 ÷ 10.35 = ¥2,899 Q7. A ready reduce is very involved to use ; imply FALSE A ready reduce can be unroving using any total TRUE The ready reduce is comfortable to use ; imply. The admonish used is unroving and any total can be unroving using the locked admonish. Q8. D Deposit = $30,000 ÷ [1 + (6.3% × 6/12)] = $29,084 Convert = $29,084 ÷ 10.2 = ¥2,851 Borrow profit = [¥2,851 × (3.3% × 6/12)] = ¥47 Total cancelments = ¥2,851 + ¥47 = ¥2,898 Q9. C The reduce can be tailored, The suitable bound of voucher/cancelment is not unconcealed, can be produced anytime The reduce is restrictive, (Correct) Transaction absorb is either suppositious or nothing Q10. A Spot (payment) = $30,000 ÷ 10.2 = ¥2,941 Difference = ¥2,941 - ¥2,900 = ¥41 (Loss) Q11. C Interest Cancelment = [200,000 × (4% × 6/12)] = $4,000 Q12. A The trade profit admonish is 6% ; The FRA unroving profit admonish is 4.7%. The refundable profit admonish = 6% - 4.7% = 1.3% Q13. B Calculated using Profit admonish correspondence speculation = Spot admonish = $X × 1+(6% × 612)1+(4% ×612) = $1.515 X= $1.5/€ Q14. Purchasing energy correspondence speculation tends to trust penny in the covet-expression TRUE Inflation admonishs can be used to count rely-oned coming defacement admonishs TRUE General defacement admonishs are based on profit admonishs FALSE Purchasing energy correspondence speculation is penny in a covet expression as it is used to prejudge coming change admonishs and gives coming defacement admonishs. Profit admonish correspondence speculation uses profit admonishs to count ready admonishs. Q15. They are involved to earn for periods aggravate one year, it is a coyness of FRA's hence (Correct) FRA may not save the hypothecateer from inappropriate changes in the trade, it saves the hypothecateer from inappropriate trade profit admonishs hence (Incorrect) FRA's are aggravate the contrary reduces (Correct)