13. In the currency markets, $1 = 0.75 British pound and 1 Euro = $1.25. Wolveri
ID: 2628533 • Letter: 1
Question
13. In the currency markets, $1 = 0.75 British pound and 1 Euro = $1.25. Wolverine Cola produces cherry cola in England at a cost of 0.9 British pound per unit. The product is sold in France for 1.5 euros. In terms of U.S. dollars, how much profit is Wolverine realizing on each unit sold?
a. $0.37 b. $0.675 c. $0.875 d. $1.04
14. Which of the following statements is FALSE?
a. Any bond sold outside the country of the borrower is called an international bond.
b. Foreign bonds and Eurobonds are two important types of international bonds.
c. Foreign bonds are bonds sold by a domestic borrower but denominated in a different currency than the country in which the issue is sold.
d. The term Eurobond applies to any bonds that are denominated in a currency that differs from the country in which the issue is sold.
15. The US has a _________________ because we buy more foreign goods than foreigners buy of our goods.
16. The current spot price of the S&P is $1200. If the risk free rate is 5% and if owning the S&P would result in $20 of dividend income, then what should the futures price be?
a) $1200 b) $1225 c) $1240 d) $1280
17. ____________ involve two companies exchanging fixed-rate debt for floating-rate debt.
18. Which of the following statements about Futures contracts is FALSE?
a) Traded on an organized exchange
b) Profits and losses are marked to market
c) Actual delivery almost always occurs
d) All of the above are true
19. There are call options on the common stock of XYZ Corporation. Which of the following best describes the factors that affect call option values?
a. The price of the call options will rise if XYZ
Explanation / Answer
13. b. $0.675
Cost of cherry cola in dollars = 0.9/0.75 = $1.2
Selling price in dollars = 1.5*1.25 = 1.875
Profit on each unit = 1.875-1.2 = 0.675
14. c. Foreign bonds are bonds sold by a domestic borrower but denominated in a different currency than the country in which the issue is sold.
Foreign bonds are issued in the currency of the country in which it is issued
15. 2. Current Account Deficit
16. c) $1240
Futures price = 1200 * (1.05) - 20 = 1240
17. 4. Interest Rate Swap
18 c)Actual delivery almost always occurs
In practice, delivery occurs on very few contracts as most get closed by taking an opposite position
19. a. The price of the call options will rise if XYZ
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