Question1. Every time a listed company does a share buyback, investors and media alike would debate fiercely on merits of such a scheme. There are investors who prefer buybacks to high dividends payments and vice versa. Proponents of both schemes position themselves to share price increases as their proof that such schemes raise shareholder value.
Required:
Explain how shareholders’ value is improved by information asymmetry rather than by the change in financial structure or dividend policies. Support your argument with the empirical evidences.
Question2. Describe the three main forms of market efficiency?
Question3. What is the empirical evidence in favour and against the weak-form of market efficiency?
Question4. Explain the relationship between Spot and Forward Exchange Rates.
Question5. Consider a currency swap in which the domestic party pays the fixed rate in foreign currency, the UK pounds sterling, and the counterparty pays a fixed rate in US Dollars. The notional principals are $50 million and $30 million. The fixed rates are 5.6% in dollars and 6.25% in pounds. Both sets of payments are made on the basis of 30 days per month and 365 days per year and the payments are made half yearly.
(a) Find out the initial exchange of cash that occurs at the start of the swap.
(b) Find out the semi-annual payments.
(c) Find out the final exchange of cash that occurs at the end of the swap.
(d) Give an example of a situation in which this swap may be suitable.