【良心出品】国际金融普格尔14版课后答案key to ch4

2、You will need data on four market rates: The current interest rate (or yield) on

bonds issued by the U.S. government that mature in one year, the current interest rate (or yield) on bonds issued by the British government that mature in one year, the current spot exchange rate between the dollar and pound, and the current one-year forward exchange rate between the dollar and pound. Do these rates result in a covered interest differential that is very close to zero?

4. a. The U.S. firm has an asset position in yen—it has a long position in yen. To

hedge its exposure to exchange rate risk, the firm should enter into a forward exchange contract now in which the firm commits to sell yen and receive dollars at the current forward rate. The contract amounts are to sell 1 million yen and receive $9,000, both in 60 days.

b. The student has an asset position in yen—a long position in yen. To hedge

the exposure to exchange rate risk, the student should enter into a forward exchange contract now in which the student commits to sell yen and receive dollars at the current forward rate. The contract amounts are to sell 10 million yen and receive $90,000, both in 60 days.

c. The U.S. firm has an liability position in yen—a short position in yen. To

hedge its exposure to exchange rate risk, the firm should enter into a forward exchange contract now in which the firm commits to sell dollars and receive yen at the current forward rate. The contract amounts are to sell $900,000 and receive 100 million yen, both in 60 days. 6. Relative to your expected spot value of the euro in 90 days ($1.22/euro), the

current forward rate of the euro ($1.18/euro) is low—the forward value of the euro is relatively low. Using the principle of \"buy low, sell high,\" you can speculate by entering into a forward contract now to buy euros at $1.18/euro. If you are correct in your expectation, then in 90 days you will be able to immediately resell those euros for $1.22/euro, pocketing a profit of $0.04 for each euro that you bought forward. If many people speculate in this way, then massive purchases now of euros forward (increasing the demand for euros forward) will tend to drive up the forward value of the euro, toward a current forward rate of $1.22/euro.

8. a. The Swiss franc is at a forward premium. Its current forward value

($0.505/SFr) is greater than its current spot value ($0.500/SFr).

b. The covered interest differential \"in favor of Switzerland\" is ((1 +

0.005)(0.505) / 0.500) - (1 + 0.01) = 0.005. (Note that the interest rate used must match the time period of the investment.) There is a covered interest

differential of 0.5% for 30 days (6 percent at an annual rate). The U.S. investor can make a higher return, covered against exchange rate risk, by investing in SFr-denominated bonds, so presumably the investor should make this covered investment. Although the interest rate on SFr-denominated bonds is lower than the interest rate on dollar-denominated bonds, the forward premium on the franc is larger than this difference, so that the covered investment is a good idea.

c. The lack of demand for dollar-denominated bonds (or the supply of these

bonds as investors sell them in order to shift into SFr-denominated bonds) puts downward pressure on the prices of U.S. bonds—upward pressure on U.S. interest rates. The extra demand for the franc in the spot exchange market (as investors buy SFr in order to buy SFr-denominated bonds) puts upward pressure on the spot exchange rate. The extra demand for SFr-denominated bonds puts upward pressure on the prices of Swiss bonds—downward pressure on Swiss interest rates. The extra supply of francs in the forward market (as U.S. investors cover their SFr investments back into dollars) puts downward pressure on the forward exchange rate. If the only rate that changes is the forward exchange rate, this rate must fall to about $0.5025/SFr. With this

forward rate and the other initial rates, the covered interest differential is close to zero. 10. In testing covered interest parity, all of the interest rates and exchange rates

that are needed to calculate the covered interest differential are rates that can observed in the bond and foreign exchange markets. Determining whether the covered interest differential is about zero (covered interest parity) is then straightforward (although some more subtle issues regarding timing of

transactions may also need to be addressed). In order to test uncovered interest parity, we need to know not only three rates—two interest rates and the current spot exchange rate—that can be observed in the market, but also one rate—the expected future spot exchange rate—that is not observed in any market. The tester then needs a way to find out about investors' expectations. One way is to ask them, using a survey, but they may not say exactly what they really think. Another way is to examine the actual uncovered interest

differential after we know what the future spot exchange rate actually turns out to be, and see whether the statistical characteristics of the actual uncovered differential are consistent with an expected uncovered differential of about zero (uncovered interest parity).