Suppose the central bank of Zambia raises interbank internet rates, resulting in

Question

Suppose the central bank of Zambia raises interbank internet rates, resulting in a higher raw of return available on investments denominated in New Zambian Kwacha (2MW). In addition, increased political risks in Zambia result higher volatility of the New Zambian Kwacha. The likely effect of these occurrences would be. a) A decrease in the USD/ZMW Bid/Ask spread b) An increase in the USD/ZMW Bid/Ask spread c) Either an increase or decrease in the spread depending upon the size of the increase in internet rates d) Either an increase or decrease in the spread depending upon the nature of the political risks 6. If a U.S. firm desires to avoid the risk from exchange rate fluctuations, and it will receive EUR 100.000 in 90 days, it could: a) Sell euro forward 90 days b) Buy euro forward 90 days c) Obtain a buy contract in euro futures with an exercise date of 90 days d) Simultaneously sell euro forward 90 days and obtain a sell contract in euro futures with an exercise date of 90 days 7. Suppose you can borrow or lend funds in the US at 6% and in Myanmar at 12%. The currency of Myanmar is the Kyat (MMK). The current exchange rate is MMK 1090/USD. Suppose you believe at the end of 1 year the exchange rate will be MMK 1321/USD. You should. a) Borrow in Kyat and invest in Dollars b) Borrow in Kyat and invest in Kyat c) Borrow in Dollars and invest in Kyat d) Do nothing

Explanation / Answer

Ans;

5.Either an increase or decrease in the spread depending upon the nature of the political risks

6.buy euro forward days

7.buy euro forward days

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