1) Graylon, Inc., based in the U.S., exports products to a German firm and will receive a payment of €200,000 in three months. On June 1, the spot rate of the euro was $1.12, and the 3-month forward rate was $1.10. On June 1, Graylon negotiated a forward contract with a bank to sell €200,000 forward in three months. The spot rate of the euro on September 1 is $1.15. Graylon will receive $_______ for the euros.
A) 224,000
B) 220,000
C) 200,000
D) 230,000
2) The 90-day forward rate for the euro is $1.07, while the current spot rate of the euro is $1.05. What is the annualized forward premium or discount of the euro?
A) 1.9 percent discount.
B) 1.9 percent premium.
C) 7.6 percent premium.
D) 7.6 percent discount.
3) Your company expects to receive 5,000,000 Japanese yen 60 days from now. You decide to hedge your position by selling Japanese yen forward. The current spot rate of the yen is $.0089, while the forward rate is $.0095. You expect the spot rate in 60 days to be $.0090. How many dollars will you receive for the 5,000,000 yen 60 days from now?
A) $44,500.
B) $45,000.
C) $526 million.
D) $47,500.
4) If the U.S. Federal Reserve Bank wants to lower short-term interest rates, it will usually
A) buy treasury bonds from its primary dealers
B) sell treasury bonds to its primary dealers
C) print more dollars
D) sell dollars in the foreign exchange market
5) If interest rate parity exists, then _______ is not feasible.
A) forward realignment arbitrage
B) triangular arbitrage
C) covered interest arbitrage
D) locational arbitrage