Sie sind auf Seite 1von 4

Reading 13 Currency Exchange Rates: Determination and Forecasting FinQuiz.

com

FinQuiz.com
CFA Level II Item-set Solution
Study Session 4
June 2017

Copyright 2010-2017. FinQuiz.com. All rights reserved. Copying, reproduction


or redistribution of this material is strictly prohibited. info@finquiz.com.

FinQuiz.com 2017 - All rights reserved.


Reading 13 Currency Exchange Rates: Determination and Forecasting FinQuiz.com

FinQuiz Level II 2017 Item-sets Solution

Reading 13: Currency Exchange Rates: Determination and Forecasting

1. Question ID: 18445


Correct Answer: C
C is correct. The larger the transaction, the further away from the current spot exchange rate
the dealing price will be. The order placed by the client is large and will widen the bid-offer
spread quoted by the dealer.

A is incorrect. The type of client, individual or institutional, should not have an effect on the
size of the spread quoted.

B is incorrect. The trade will take place when the London FX trading center is open, that is,
the interbank FX market will be relatively liquid. Thus should narrow the spread quoted by
the dealer.

2. Question ID: 18446


Correct Answer: B
B is correct.
Smart originally purchased CAD 5 million under the original forward contract. To close out
its long position in CAD, it will need to sell CAD 5 million forward to the same settlement
date. Thus Smart will sell CAD, or alternatively buy USD, at the all-in offer rate of 1.0065 +
(14.1/10,000) = 1.00509.

At settlement, Smart will need to purchase CAD 5 million under the original forward contract
and sell CAD 5 million under the offsetting forward contract; the CAD will net to zero.
However the USD will not net to zero because the forward rate has changed since contract
initiation. At settlement Smart will receive CAD 5 million and pay out USD 5,022,097.23
(5,000,000/0.9956) under the original forward contract and sell CAD 5 million and receive
USD 4,974,678.88 (5,000,000/1.00509) under the new contract.

The difference between the USD received and paid is - USD 47,418.35 (USD 4,974,678.88
USD 5,022,097.23). This represents an outflow because the original contract was long the
CAD (or short the USD) and the CAD subsequently depreciated (or the USD appreciated,
because the all-in forward rate increased from 0.9956 to 1.00509). The present value of this
outflow is calculated as follows:

USD 47,418.35
= 47,397.81
60
1 + 0.0026 360

FinQuiz.com 2017 - All rights reserved.


Reading 13 Currency Exchange Rates: Determination and Forecasting FinQuiz.com

3. Question ID: 18447


Correct Answer: A
A is correct.
To determine whether arbitrage profits are possible, it is first necessary to calculate the bid-
offer cross rate on the EUR/USD implied by the interbank market.

!"#
= !"#
= 105.438 0.01222180*
= 1.2886

& ' & ' ,-.


% ( =% ( % (
)*+ ,-. )*+ )*+
= 105.440 0.01222210*
= 1.2887

*The JPY/USD rate is calculated as the inverse of the USD/JPY rate. Since the bid is the
lower of the two inverse amounts, 0.01222180 and 0.01222210, the bid-offer spread is
0.01222180/0.01222210.

Based on the interbank-implied cross rate of 1.2886/1.2887, the dealer is posting an offer rate
to sell the USD cheaply, at a rate below the interbank market bid (1.2816 vs. 1.2886,
respectively). Therefore, a triangular arbitrage would involve buying USD from the dealer
selling it in the interbank market.

4. Question ID: 18448


Correct Answer: B
B is correct. Arbitrage profits cannot be earned if the bid (offer) shown by the dealer is lower
(higher) than the current interbank market offer (bid). Given that dealers bid, 1.4864, is
lower than the interbanks offer, 1.4865, and the dealers offer, 1.4866, is higher than the
interbanks bid, 1.4863, arbitrage profits cannot be earned.

A is incorrect. The dealers offer of 1.4862 is lower than the interbank bid of 1.4863. It is
possible to buy USD from the dealer and sell it in the interbank market and earn a profit.

C is incorrect. The dealer bid of 1.4867 is higher than the interbank offer of 1.4865. It is
possible to buy USD from the interbank and sell it to the dealer.

5. Question ID: 18449


Correct Answer: B
B is least likely correct. Because Eoria is running a current account deficit, it is expected that
the domestic currency will depreciate. However, a depreciation of the domestic currency
should contribute to an improvement in Eorias trade competitiveness, in the long run, as the
level of exports should increase relative to the imports. Masoods comment with respect to
trade competitiveness is incorrect.

A is most likely correct. As stated in the preceding paragraph, Eorias domestic currency
should depreciate because of its current account deficit.

FinQuiz.com 2017 - All rights reserved.


Reading 13 Currency Exchange Rates: Determination and Forecasting FinQuiz.com

C is most likely correct. Relatively long lags can occur between changes in exchange rates,
the ultimate adjustment in traded good prices and the eventual impact on import demand,
export demand, and the underlying current account imbalance.

6. Question ID: 18450


Correct Answer: C
C is least likely correct. The long-run equilibrium real value of Belares currency should
increase as market participant revise upward their assessment of the domestic currency. This
is because a tight fiscal policy should improve Belares long-run competitiveness, generate
price stability, and gradually boost the real equilibrium value of its exchange rate.

A is most likely correct. An improvement in long-run competitiveness and the gradual


achievement of price stability policy will encourage investors to reduce the premium
demanded for holding the high yield currencys assets. Therefore the relative risk premium,
H L, should decline.

B is most likely correct. A tight fiscal policy will put downward pressure on domestic interest
rates. With a decrease in Belares yield, the interest rate differential, iH iL, should decline.

FinQuiz.com 2017 - All rights reserved.

Das könnte Ihnen auch gefallen