Question 1

An FI usually creates an open position by taking an unhedged position in a foreign currency in its FX trading with other FIs.

Accepted Answer

A) True 
 B)False

Question 2

The dollar loss/gain in a particular currency i can be calculated as:

Accepted Answer

A)  Net exposure in foreign currency i multiplied by the volatility to the ($/foreign currency i)  exchange rate.
B)  Net exposure in foreign currency i measured in Australian dollars divided by the volatility to the ($/foreign currency i)  exchange rate.
C)  Net exposure in foreign currency i divided by the volatility to the ($/foreign currency i)  exchange rate.
D)  Net exposure in foreign currency i measured in Australian dollars multiplied by the volatility to the ($/foreign currency i)  exchange rate.

Question 3

Which of the following statements is true?

Accepted Answer

A)  The implications of the interest rate parity theorem is that in a competitive market for deposits, loans and foreign exchange, the potential profit opportunities from overseas investment for the FI manager are likely to be large.
B)  The implications of the interest rate parity theorem is that in a competitive market for deposits, loans and foreign exchange, the potential profit opportunities from overseas investment for the FI manager are likely to be non-existent.
C)  The implications of the interest rate parity theorem is that in a competitive market for deposits, loans and foreign exchange, the potential profit opportunities from overseas investment for the FI manager are likely to be small.
D)  None of the listed options are correct.

Question 4

Assume an FI sells A$100 million for US$ on the spot currency markets at an exchange rate of A$1.20 to $US1.00.What is the US$ value of the investment (round to two decimals) ?

Accepted Answer

A)  $100 million * $1.2 = US$120 000.00 million
B)  $100 million / $1.2 = US$83 333.33 million
C)  $100 million / ($1.2 - US$1.0)  = US$500 000.00 million
D)  $100 million * ($1.2 - US$1.0)  = US$20 000.00 million

Question 5

Which of the following statements is true?

Accepted Answer

A)  The smaller the FI's net exposure in a foreign currency and the larger the foreign currency's exchange rate volatility, the larger is the potential dollar loss or gain to an FI's earnings.
B)  The smaller the FI's net exposure in a foreign currency and the smaller the foreign currency's exchange rate volatility, the larger is the potential dollar loss or gain to an FI's earnings.
C)  The larger the FI's net exposure in a foreign currency and the smaller the foreign currency's exchange rate volatility, the larger is the potential dollar loss or gain to an FI's earnings.
D)  The larger the FI's net exposure in a foreign currency and the larger the foreign currency's exchange rate volatility, the larger is the potential dollar loss or gain to an FI's earnings.

Question 6

In the Australian market in 2013, FX swaps were the most actively traded instruments, at $2.2 trillion per day, followed by spot trading at $2.0 trillion.

Accepted Answer

A) True 
 B)False

Question 7

Suppose an FI has the following assets and liabilities: $\begin{array} { | l | l | } 
\hline \text { Assets } & \text { Liabilities } \
\hline \text { A\$100 million loans (one year) in dollars } & \text { A\$200 million securities (one year) in dollars } \
\hline \$ 100 \text { million equivalent EUR loans (one year) (loans made in euros) } & \
\hline
\end{array}$
To invest $100 million of the $200 million securities in one-year euro loans, the Australian FI engaged in the following transactions:
At the beginning of the year, it sold $100 million for euros on the spot currency markets at an exchange rate of A$2 to €1.
It takes the equivalent euro amount and makes one-year euro loans at a 15% interest rate.At the end of the year, the Australian FI repatriates the funds back to Australia at the same spot currency market rate of A$2/ €1.
(a) Calculate the equivalent euro amount of $100 million using the spot exchange rate stated in transaction (1).
(b) Calculate the value of the euro assets at the end of the year.
(c) Calculate the dollar proceed of the euro investment.
(d) Assume that the A$100 million loans yield a rate of 10% p.a.What is the FI's weighted return on investments?

Accepted Answer

(a) At the beginning of the year, the Au...

Question 8

Which of the following statements is true?

Accepted Answer

A)  Conceptually, an FX rate will appreciate in value relative to other currencies when demand is high.
B)  Conceptually, an FX rate will appreciate in value relative to other currencies when supply is low.
C)  Conceptually, an FX rate will depreciate in value relative to other currencies when demand is low.
D)  All of the listed options are correct.

Question 9

Assume an FI sells $100 million for euros on the spot currency markets at an exchange rate of $1.20 to €1.00 and invests the euro assets at an interest rate of 11% for one year.What is the weighted annual return on the FI's portfolio assuming that the $100 million are 20% of the FI's total assets and that the remaining assets are invested in Australian dollar assets at an average interest rate of 8% per annum (round to two decimals) ?

Accepted Answer

A)  9.50% p.a.
B)  8.60% p.a.
C)  20.00% p.a.
D)  10.40% p.a.

Question 10

In a currency swap it is usual to include both principal and interest payments as part of the swap agreement.

Accepted Answer

A) True 
 B)False

Question 11

A US FI wishes to hedge a €10 000 000 loan using euro currency futures.Each euro futures contract is for €125 000, and the hedge ratio is 1.40.The loan is payable in one year in euros.What type of currency hedge is necessary to protect the FI from exchange rate risk?

Accepted Answer

A)  Buy euro currency futures.
B)  Sell euro currency futures.
C)  Finance the loan with Eurodollar deposits.
D)  Either sell euro currency futures or finance the loan with Eurodollar deposits.

Question 12

According to PPP, foreign currency exchange rates between two countries adjust to reflect changes in each country's:

Accepted Answer

A)  unemployment rates
B)  export competitiveness
C)  inflation rates
D)  foreign exchange reserves

Question 13

Which of the following statements best describes the interest rate parity theorem (IRPT) ?

Accepted Answer

A)  The IRPT is a proposition stating that the nominal spread between domestic and foreign interest rates equals the percentage spread between forward and spot exchange rates.
B)  The IRPT is a proposition stating that the nominal spread between domestic and foreign currency rates equals the percentage spread between forward and spot exchange rates.
C)  The IRPT is a proposition stating that the discounted spread between domestic and foreign currency rates equals the percentage spread between forward and spot exchange rates.
D)  The IRPT is a proposition stating that the discounted spread between domestic and foreign interest rates equals the percentage spread between forward and spot exchange rates.

Question 14

Which of the following statements is true for an FI that holds €200,000 in assets and €250,000 in liabilities?

Accepted Answer

A)  The FI faces the risk that the euro will fall in value against domestic currency.
B)  The FI faces the risk that the euro will rise in value against domestic currency.
C)  The FI has net foreign assets of €200,000.
D)  The FI has net foreign assets of €50,000.

Question 15

Which of the following is an example of interest rate parity?

Accepted Answer

A)  The Japanese yen trades at the same exchange rate as the Swiss franc.
B)  US dollar rates on one-year US Treasury securities equal one-year Japanese government bond rates.
C)  US dollar rates on one-year US Treasury securities equal one-year Japanese government bond rates, restated in dollars.
D)  British pound two-year forward rates equal two-year Swiss franc forward rates.

Question 16

Which of the following statements is true?

Accepted Answer

A)  The reason why in a currency swap it is usual to include both principal and interest payments as part of the swap agreement is that both principal and interest are exposed to foreign exchange risk.
B)  In a currency swap it is usual to include both principal and interest payments as part of the swap agreement as this makes the currency conversion less complex.
C)  In a currency swap it is usual to include both principal and interest payments as part of the swap agreement as otherwise it is impossible to value the swap.
D)  It is not usual to include both principal and interest payments as part of the swap agreement.

Question 17

Assume an FI sells A$100 million for US dollars on the spot currency markets at an exchange rate of A$1.20 to US$1.00 and invests the US dollar assets at an interest rate of 12% for one year.What is the value of the US dollar assets at the end of the year (round to two decimals) ?

Accepted Answer

A)  US$134 400.00 million
B)  US$22 400.00 million
C)  US$93 333.33 million
D)  US$560 000.00 million

Question 18

Most profits or losses on FX trading for FIs come from taking an open position or speculating in currencies.Revenues from market making-the bid-ask spread-or from acting as agents for retail or wholesale customers generally provide only a secondary or supplementary revenue source.

Accepted Answer

A) True 
 B)False

Question 19

Assume that an FI has the following assets and liabilities:   Assets  Liabilities  A$100 million loans (one year)   A$200 million securities (one year)   A$100 million equivalent German loans (one year)  (loans made in euros)  \begin{array} { | l | l | } \hline 	ext { Assets } & 	ext { Liabilities } \\hline 	ext { A\$100 million loans (one year)  } & 	ext { A\$200 million securities (one year)  } \\hline 	ext { A\$100 million equivalent German loans (one year)  (loans made in euros)  } & \\hline\end{array} Assets  A$100 million loans (one year)   A$100 million equivalent German loans (one year)  (loans made in euros)  ​ Liabilities  A$200 million securities (one year)  ​​  Which of the following statements is true?

Accepted Answer

A)  The FI has a net long position in euros.
B)  The FI has mismatched the currency composition of its asset and liabilities portfolio.
C)  The FI has matched the maturities of its assets and liabilities.
D)  All of the listed options are correct.

Question 20

A US FI wishes to hedge a €10 000 000 loan using euro currency futures.Each euro futures contract is for €125 000, and the hedge ratio is 1.40.The loan is payable in one year in euros.How many currency contracts are necessary to hedge this asset?

Accepted Answer

A)  112 bought euro currency futures contracts
B)  112 sold euro currency futures contracts
C)  80 bought euro currency futures contracts
D)  80 sold euro currency futures contracts

Exam 13: Foreign Exchange Risk

Assume an FI sells A$100 million for US dollars on the spot currency markets at an exchange rate of A$1.20 to US$1.00 and invests the US dollar assets at an interest rate of 12% for one year.What is the value of the US dollar assets at the end of the year (round to two decimals) ?

Correct Answer
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Which of the following is an example of interest rate parity?

Correct Answer
verified

In the Australian market in 2013, FX swaps were the most actively traded instruments, at $2.2 trillion per day, followed by spot trading at $2.0 trillion.

Correct Answer
verified

Most profits or losses on FX trading for FIs come from taking an open position or speculating in currencies.Revenues from market making-the bid-ask spread-or from acting as agents for retail or wholesale customers generally provide only a secondary or supplementary revenue source.

Correct Answer
verified

Assume an FI sells A$100 million for US$ on the spot currency markets at an exchange rate of A$1.20 to $US1.00.What is the US$ value of the investment (round to two decimals) ?

Correct Answer
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Correct Answer
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Which of the following statements is true for an FI that holds €200,000 in assets and €250,000 in liabilities?

Correct Answer
verified

Which of the following statements is true?

Correct Answer
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Which of the following statements is true?

Correct Answer
verified

Correct Answer
verified

Which of the following statements is true?

Correct Answer
verified

An FI usually creates an open position by taking an unhedged position in a foreign currency in its FX trading with other FIs.

Correct Answer
verified

According to PPP, foreign currency exchange rates between two countries adjust to reflect changes in each country's:

Correct Answer
verified

The dollar loss/gain in a particular currency i can be calculated as:

Correct Answer
verified

A US FI wishes to hedge a €10 000 000 loan using euro currency futures.Each euro futures contract is for €125 000, and the hedge ratio is 1.40.The loan is payable in one year in euros.What type of currency hedge is necessary to protect the FI from exchange rate risk?

Correct Answer
verified

A US FI wishes to hedge a €10 000 000 loan using euro currency futures.Each euro futures contract is for €125 000, and the hedge ratio is 1.40.The loan is payable in one year in euros.How many currency contracts are necessary to hedge this asset?

Correct Answer
verified

Which of the following statements is true?

Correct Answer
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Correct Answer
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(a) At the beginning of the year, the Au...
View Answer

Which of the following statements best describes the interest rate parity theorem (IRPT) ?

Correct Answer
verified

In a currency swap it is usual to include both principal and interest payments as part of the swap agreement.

Correct Answer
verified

Exam 13: Foreign Exchange Risk

Assume an FI sells A$100 million for US dollars on the spot currency markets at an exchange rate of A$1.20 to US$1.00 and invests the US dollar assets at an interest rate of 12% for one year.What is the value of the US dollar assets at the end of the year (round to two decimals) ?

Correct AnswerverifiedShow Answer

Which of the following is an example of interest rate parity?

Correct AnswerverifiedShow Answer

In the Australian market in 2013, FX swaps were the most actively traded instruments, at $2.2 trillion per day, followed by spot trading at $2.0 trillion.

Correct AnswerverifiedShow Answer

Most profits or losses on FX trading for FIs come from taking an open position or speculating in currencies.Revenues from market making-the bid-ask spread-or from acting as agents for retail or wholesale customers generally provide only a secondary or supplementary revenue source.

Correct AnswerverifiedShow Answer

Assume an FI sells A$100 million for US$ on the spot currency markets at an exchange rate of A$1.20 to $US1.00.What is the US$ value of the investment (round to two decimals) ?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is true for an FI that holds €200,000 in assets and €250,000 in liabilities?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

An FI usually creates an open position by taking an unhedged position in a foreign currency in its FX trading with other FIs.

Correct AnswerverifiedShow Answer

According to PPP, foreign currency exchange rates between two countries adjust to reflect changes in each country's:

Correct AnswerverifiedShow Answer

The dollar loss/gain in a particular currency i can be calculated as:

Correct AnswerverifiedShow Answer

A US FI wishes to hedge a €10 000 000 loan using euro currency futures.Each euro futures contract is for €125 000, and the hedge ratio is 1.40.The loan is payable in one year in euros.What type of currency hedge is necessary to protect the FI from exchange rate risk?

Correct AnswerverifiedShow Answer

A US FI wishes to hedge a €10 000 000 loan using euro currency futures.Each euro futures contract is for €125 000, and the hedge ratio is 1.40.The loan is payable in one year in euros.How many currency contracts are necessary to hedge this asset?

Correct AnswerverifiedShow Answer

Which of the following statements is true?

Correct AnswerverifiedShow Answer

Correct Answerverified(a) At the beginning of the year, the Au...View AnswerShow Answer

Which of the following statements best describes the interest rate parity theorem (IRPT) ?

Correct AnswerverifiedShow Answer

In a currency swap it is usual to include both principal and interest payments as part of the swap agreement.

Correct AnswerverifiedShow Answer

Correct Answer
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(a) At the beginning of the year, the Au...
View Answer

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