20 points per page/ 200 points for 10 pages 1. Currently, the spot exchange rate is $1.

3706/ and the forward exchange rate, with one-year aturity, is $1.3!00/. "he annual interest rate is 1.0 percent in the #.$. and 3.0 percent in the euro %one. &ssu e that you can 'orrow as uch as $1,370,600 or 1,000,000. a. Calculate the co(ered yield for the euro )).

'. *eter ine whether interest rate parity )+,-. is currently holding.

c. /ow would you carry out co(ered interest ar'itrage )C+&.0 $how step-'y-step process and the ar'itrage profit.

d. 1xplain how +,- will 'e restored as a result of the C+& acti(ities. Co pare the Co(ered +nterest &r'itrage with Currency Carry "rade.

2. 3n &pril 22, 2012, the price of 4ig 5ac is $3.!7 in the #.$., and is 12.!0 yuan in local currency in China. 6urther ore, actual exchange rate 'etween #$ dollar and Chinese yuan is 6.73 yuan per dollar on that day. a. Calculate an a'solute (ersion of --- exchange rate )or i plied --- exchange rate., and the agnitude of under- or o(er-(aluation of Chinese yuan against #$ dollar in percent.

'. 3n &pril 22, 2013, the price of 4ig 5ac is $3.83 in the #.$., and is 1!.00 yuan in local currency in China. 6urther ore, actual exchange rate 'etween #$ dollar and Chinese yuan is 7.!1 yuan per dollar on that day. &ssu e that inflation rate is easured 'y the change in the 4ig 5ac price only. Calculate a relati(e (ersion of --- exchange rate, and discuss the change in exchange rate of yuan against #$ dollar.

c. Calculate real exchange rate, q, which easures de(iations fro --- on &pril 22, 2013, and discuss the i plication of the real exchange rate for the co panies in the #.$. and China.

d. 1xplain the real effecti(e exchange rate ),11,.. *iscuss your interpretation of a ,11, graph for China in 1xhi'it 6.7 )p 1!3.. +f you are a'le to update the graph 'y (isiting the +56, 9orld 4an:, or 4+$ we'sites, you will get extra credit as you su' it a hard copy at the 'eginning of final exa .

3. & 'an: sells a ;three against six< $3,000,000 6,& for a three- onth period 'eginning three onths fro today and ending six onths fro today. "he purpose of the 6,& is to co(er the interest rate ris: caused 'y the aturity is atch. "he agree ent rate with the 'uyer is 6.0 percent. "here are actually 81 days in the three- onth period. &ssu e that three onths fro today the settle ent rate is !.12! percent. *eter ine how uch the 6,& is worth and who pays who-the 'uyer pays the seller or the seller pays the 'uyer.

=. >ia your 'ro:er, you in(ested your oney in $a sung 1lectronics Corporation, a a?or co pany in +", o'ile co unications, se iconductor and consu er electronic products 'usinesses. /owe(er, $a sung stoc:s are 'eing traded on the @orea $toc: 1xchange in @orea. 3(er the past year, the stoc: has gone fro Won1,200,000 per share to Won1,==0,000, 'ut o(er the sa e period, the (alue of the @orean Won has appreciated ! A against the #$ dollar. Calculate the your annual percentage rate of return in ter s of the #.$. dollars.

!. "he 1astern "rading Co pany of $ingapore purchases spices in 'ul: fro around the world, pac:ages the into consu er-si%e Buantities, and sells the through sales affiliates in /ong @ong, the #nited @ingdo , and the #nited $tates. 6or a recent onth, the following pay ents atrix of inter-affiliate cash flows, stated in $ingapore dollars, was forecasted. $how how 1astern "rading can use ultilateral netting to ini i%e the foreign exchange transactions necessary to settle inter-affiliate pay ents. +f foreign exchange transactions cost the co pany .! percent, what sa(ings result fro netting0
1astern "rading Co pany -ay ents 5atrix )$$000. *is'urse ents ,eceipts $ingapore /ong @ong $ingapore =0 /ong @ong 7 #.@. 1! #.$. 11 2! "otal 3= 6! dis'urse ents #.@. 7! #.$. !! 22 17 8= "otal ,eceipts 170 30 32 =! 277

8 7=

6. 5ar:ing to

ar:et

Cou enter into a Crude 3il futures contract at 1D00 p on *ec 3. "he details of the contract is as followsD aturity- *ece 'er, nu 'er of contract- one, position-short )sell., futures contract price$100/'arrel, initial argin-$!,000, aintenance argin-$3,000. "he standard si%e of crude oil futures contract is 1,000 'arrels. Cou close out your position at the end of *ec 6 at the settle ent price. "he settle ent prices of each day are shown in the 2nd colu n as follows. 6ill out all cells with appropriate nu 'ers for ar:ing to ar:et process each day. *ate 6utures *aily gain Cu ulati(e 5argin account 5argin call )settle ent.p )loss. gain )loss. 'alance rice *ec 3 )at 1D00 p . $100 *ec 3 $8! *ec = $101 *ec ! $103 *ec 6 $100

7. +nterest rate swap

a. *esign an interest rate swap contract with the attached 6inancial "i es Buotations )#$$, ! years. using diagra s, si ilar to 6igure 23.6 )p76=., assigning E+43, and appropriate 'id and as: rates in right places along the arrow. $pecifically, the na e of swap dealer is F$ 6inance. +45 enters into an interest rate swap contract with F$ 6inanceD pay a fixed rate and recei(e E+43,. $i ultaneously, #4$ enters into an interest rate swap contract with F$ 6inance with the sa e aturity )! years. and sa e notional principalD pay E+43, and recei(e a fixed rate.

'. 1xplain the possi'le oti(ation of +45 and #4$, respecti(ely, to enter into the interest rate swap contract with F$ 6inance. 9hat is the a?or purpose of +45 and #4$ to sign interest rate swap contracts0

c. *iscuss the costs and 'enefits of F$ 6inance as a swap dealer. *oes F$ 6inance ha(e an exposure to interest rate ris:0

d. &ccording to 9$G article )*ece 'er !, 2013., #4$ is fined $1.!2 'illion 'y #$, #@, and $wit%erland for collusion on E+43, fixing. 1xplain how #4$ can exploit an illegal profit 'y E+43, fixing as you analy%e your diagra in a..

7. a. 9hat are the ad(antages of currency option contracts as a hedging tool co pared with the oney ar:et hedge and the forward ar:et hedge0 !

'. 1xplain ;corporate go(ernance< and ;free cash flows.< 9hy do anagers li:e to retain free cash flows instead of distri'uting it to shareholders0 *iscuss what echanis s ay 'e used to sol(e this pro'le . Co ent a significant difference on the corporate go(ernance 'etween the 1nglish co on law and 6rench ci(il law using a text'oo: exa ple co panies in the #.@. and +taly and its conseBuences.

8. a. Eist the possi'le 'enefits of international ultiple listing 'y a purely do estic fir . Cou ha(e to use an exa ple of foreign co pany listed on HC$1, etc, referring to the na e of the co pany and its ho e country.

'. *iscuss the effect of the international ultiple listing of a do estic fir do estic fir s which are only listed in do estic ar:et.

on other purely

c. 1xplain the pricing spillover effect. 10. a. 1xplain additional aspects you need to consider for international capital 'udgeting when co pared to do estic capital 'udgeting. Cou ha(e to use a specific exa ple of the Centralia Corporation case in Chapter 17 for your explanation. 6

'. /ow would you incorporate political ris: into the capital 'udgeting process of foreign in(est ent pro?ects0 Cou are reBuired to discuss your idea in reference to 1Buations 17.6 and 17.7.

c. You are required to submit your answer via Blackboard (Go to !inal "#am $uestion% section& wit'in ( 'ours after in)class e#am or you will get no credit* *eter ine whether the Centralia Corporation should proceed with a new pro?ect 'ased on the re(ised infor ation on pertinent data for capital 'udgeting of the new pro?ect )p=67-=72. as 'elowD ,e(ised infor ationD a. "he cost of constructing the anufacturing plant is esti ated at !,200,000.

'. 9hen the plant 'egins operation, units will 'e priced at 22!. +t is esti ated that the current production cost will 'e 170. "hus, you ha(e to calculate and incorporate the re(ised 'efore-tax incre ental operating cash flow per unit at t I 1. $how your calculation for the &-> of the pro?ect using your 1xcel te plate you de(eloped for ho ewor: assign ent.

11. 1xplain the following ter s as concisely as possi'le with your own exa ple and/or graph. 1. /edging 7

2. &r'itrage

3. $harpe perfor ance

easure

=. &*, )& erican *epository ,eceipts.

!. >alue-added tax

6. foreign 'ond

7. "he ;G-Cur(e< effect

7. 6&$4 J!2 and C"& )Cu ulati(e "ranslation &d?ust ent.

8. 4+$, Capital &deBuacy $tandard and 4asel +++

10. "o'in tax and +nco pati'le trinity

11. *iscuss pros and cons of alternati(e exchange rate arrange entD 6ixed exchange rate regi e and flexi'le exchange rate regi e

10