Essay Fianace Risk

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Homework
Chapter 3
Questions
1. Utah Bank’s bid price for Canadian dollars is $.7938 and its ask price is $.81. What is the bid/ask percentage spread?
2. Of what use is a forward contract to an MNC?
3. If a euro is worth $.80, what is the value of a dollar in euros?
4. What is the function of the Eurocurrency market?
5. Why do interest rates vary among countries? Why are interest rates similar for those European countries that use the euro as their currency?

Small Business Dilemma
Use of the Foreign Exchange Markets by the Sports Exports Company (see textbook, 8th edition)

Chapter 4
Questions
1. Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this
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Chapter 5
Questions
1. How can currency futures be used by corporations? How can currency futures be used by speculators?
2. When would a U.S. firm consider purchasing a put option on euros for hedging?
3. When should a speculator purchase a put option on Australian dollars?
4. List the factors that affect currency call option premiums and briefly explain the relationship that exists for each. Do you think an at-the-money call option in euros has a higher or lower premium than an at-the-money call option in British pounds (assuming the expiration date and the total dollar value represented by each option are the same for both options)?
5. Assume that a March futures contract on Mexican pesos was avail¬able in January for $.09 per unit. Also assume that forward contracts were available for the same settlement date at a price of $.092 per peso. How could speculators capitalize on this situation, assuming zero transaction costs? How would such speculative activity affect the difference between the forward contract price and the futures price?

Small Business Dilemma
Use of Currency Futures and Options by the Sports Exports Company (see textbook, 8th edition)

Chapter 6
Questions
1. What are some advantages and disadvantages of a freely float¬ing exchange rate system versus a fixed exchange rate system?
2. How can a central bank use indirect intervention to change the value of a currency?
3. The media frequently reports

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