An Australia based company takes a US$1 million £ variable rate loan in the United Kingdom at LIBOR + 2%. Identify the risks on this financial transaction Identify possible ways to manage the associated risk.Describe ways to hedge FX risk onlyDescribe ways to hedge both Interest Rate Risk and FX risks.
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An Australia based company takes a US$1 million £ variable rate loan in the United Kingdom at LIBOR + 2%.
Identify the risks on this financial transaction
Identify possible ways to manage the associated risk.
Describe ways to hedge FX risk only
Describe ways to hedge both Interest Rate Risk and FX risks.
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- If S($/£)=$1.25/£; F360($/£)=$1.10/£; i$=7.04%; if=11.50%, to hedge foreign exchange risk involved in doing interest arbitrage: O £-based investors should buy GBP in the forward market O £-based investors should buy USD in the forward market O $-based investors should buy GBP in the forward market O $-based investors should buy USD in the forward marketSelect each of the following strategies that can be used to hedge the foreign exchange risk of a British entity expecting to receive 1m INR in one year: Group of answer choices Borrowing GBP against the receivable, converting to INR, and investing the INR at Indian interest rates. Entering a long position in a forward contract on the INR. Entering a short position in a put on the INR. Entering a long position in a put on the INR. Borrowing INR against the receivable, converting to GBP, and investing the GBP at British interest rates. Entering a short position in a forward on the INR.1. Rate at which a foreign exchange dealer converts one currency into another currency on a particular day with maximum settlement of 2 days. a. forward rate b. future forwards rate c. spot rate 2. Risk of losing a market due to forex change. a. economic risk b. market risk c. transaction risk 3. Which of the following is NOT true about private placement? a. A private placement need to be registered with SEC b. Pension funds, insurance companies are the usual investors of portfolio issued under private placement c. The company still need to disclose financial data to convince investors
- Which of the following statements are true about exchange rate risk? Check all that apply: A Canadian investor with an investment in U.S Treasury bills faces exchange rate risk. Exchange rate risk arises from the uncertainty in asset returns due to changes in the exchange rate between the currency of the investor and the foreign currency. Exchange rate risk can't be perfectly hedged, even if the return earned in the foreign currency is known beforehand. Exchange rate risk can be hedged using a futures or forward contract in foreign exchange. SubmitMatch macroprudential instruments with the types of measures. (you can also write down the matches in your answers, no need to fill in the blanks below!) Liquidity-Related Macroprudential Instruments/Types Limits on Net Open Currency Positions/Currency Mismatch Caps on Foreign Currency Lending Time-Varying/ Dynamic Provisioning Restrictions on Profit Credit-Related Capital-Related Distribution Caps on the LTVIn search of arbitrage profits in the forex market, you ring ANZ bank and Commonwealth bank. Both are Australia commercial bank. These two banks offer you the following quotes for the USD at the same time: MYR/USD 1.1650- 1.1670 UOB Bank HSBC Bank MYR/USD 1.1640- 1.1660 Illustrate your calculation start with RM1 million. Can you make an arbitrage profit with these quotes?
- The rate of interest charged on loans from a country perceived to have no risk of defaulting is called Group of answer choices the interest rate parity the MNC adjusted rate the risk free rate the weighted average cost of capitala) You observe the following quotes for the USD/AUD in the spot market from two banks: Bank of Sydney Bank of New York Bid Ask Bid Ask 0.71711 0.71715 0.71708 0.71715 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use AUD 25,000. If not, explain why arbitrage is not possible? (b) You observe the following quotes for the GBP /AUD in the spot market from two banks: Bank of Melbourne Bank of London Bid Ask Bid Ask 0.5458 0.5459 0.5514 0.5515 Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculate the potential profit if you are able to use GBP 50,000. If not, explain why arbitrage is not possible? c) You observe the following quotes for the EUR / USD in the spot market from two banks: Deutsche Bank Bank of America Bid Ask Bid Ask 1.18102 1.18102 1.18094 1.18100 Do these quotes imply the…You observe the following quotes for the USD/AUD in the spot market from two banks:Bank of Sydney /Bank of New YorkBid Ask/ Bid Ask0.71711 0.71715 /0.71708 0.71715Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculatethe potential profit if you are able to use AUD 25,000. If not, explain why arbitrage is not possible?(b) You observe the following quotes for the GBP /AUD in the spot market from two banks:Bank of Melbourne/ Bank of LondonBid Ask/ Bid Ask0.5458 0.5459 /0.5514 0.5515Do these quotes imply the possibility of earning a profit by using locational arbitrage? If so, calculatethe potential profit if you are able to use GBP 50,000. If not, explain why arbitrage is not possible?c) You observe the following quotes for the EUR / USD in the spot market from two banks:Deutsche Bank/ Bank of AmericaBid Ask /Bid Ask1.18102 1.18102 /1.18094 1.18100Do these quotes imply the possibility of earning a profit by using locational arbitrage? If…
- You are a proprietary trader under the FX Group of BDO Treasury Department. Due to the political and economic uncertainties that is happening in the Euro zone and the improving economic conditions in the US, you are bearish on the EUR and bullish on the USD. Given this view, you want to short the EUR and take a net FX position of EUR 100MM. At what rate can you establish your position, assuming the market rate prevails at EUR/USD: 1.3223-1.3227 1.3227 Do not enter the transaction because of the political and economic uncertainties in the Eurozone. 1.3223 Based on the above position/view, w/c of the following outcomes, 1 week from now, will yield you FX gains? Scenario A: at EUR/USD 1.3245 – 1.3249 Scenario B: at EUR/USD 1.3230 – 1.3234 Scenario C: at EUR/USD 1.3216 – 1.3220 How many pips will you make assuming you bought the EUR back and that the desired scenario happens? 11 pips 7 pips 3 pips What is your profit is USD? $110,000.00 $80,000.00 $30,000.00A financial institution has assets denominated in British pound sterling of $125 million andsterling liabilities of $100 million.a) What is the FI's net exposure?b) Is the FI exposed to a dollar appreciation or depreciation?c) How can the FI use futures or forward contracts to hedge its FX rate risk? d) What is the number of futures contracts to be utilized to hedge fully the FI's currencyrisk exposure?e) If the British pound falls from $1.60/£ to $1.50/£, what will be the impact on the FI'scash position?f) If the British pound futures price falls from $1.55/£ to $1.45/£, what will be the impacton the FI's futures position.Which of the following statements is false? A. Basel II use the value at risk (VaR) with a one-year time horizon and a 99.9% confidence level for calculating capital for credit risk and operational risk. B. 20 BP = 0.2% C. Basel I is increasing the amount of capital that banks are required to hold and the proportion of that capital that must be equity. D. Model-building approach is a model for the joint distribution of changes in market variables and using historical data to estimate the model parameters.