I need help with this international financial markets homework
Seminar Assignment 1. Assume the existence of a classical bond that pays constant coupons and that is reimbursed at maturity. The bond is characterized by the following data: NV = 10000 USD, coupon rate 13.5%, maturity 13 years; and the interest rate (y) is 10.5%. What is the value of the bond? What is the value of the bond if it pays semiannual coupons? 2. Characterize the international bond market. 3. You obtain the following exchange rates: $1.3969/€ and ¥128.004/$. What is the euro- yen (€/¥) cross rate? 4. You obtain the following exchange rates: $1.2452/€ and $2.0176/£. What is the europound (€/£) cross rate? 5. Bank X is quoting the following exchange rates CHF/$ = 1.5961-71 and A$/$ = 1.7227- 37. Determine the A$/CHF quote 6. The present spot exchange rate is $1.94/£ and the 3-month forward rate is $1.89/£. You consider that the spot exchange rate will be $1.91/£ in three months. Assume that you would like to buy or sell £1.875.275 a. What operations do you need to conduct to speculate in the forward market? What is the expected dollar profit from speculation? b. What would be your profit in dollars if the spot exchange rate turns out to be $1.86/£. 7. Bank W is quoting the following exchange rates $0.9922 = CHF 1 and $0.8620 = AUD1.00. What is the CHF/AUD cross rate? 8. Discuss the main ways of raising equity globally. 9. You have obtained the following exchange rates: CHF in Zurich: 1.6000-34 SF/$, £ in NY: 1.9810-49 $/£. What is the £/ CHF cross rate? 10. Bank A is quoting X/Y rate is 45.1725 and Z/X 0.0089. Bank B is quoting Z/Y rate of 0.4050. Find out the cross rate from Bank A’s point of view and check whether any arbitrage opportunity exist or not? If exists, show how the arbitrage profit can be made 11. The spot exchange rate is $1.95/£ and the three-month forward rate is $1.90/£. You consider that the spot exchange rate will be $1.92/£ in three months. Assume that you would like to buy or sell £9.669.999, 99 a. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation? b. What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be $1.86/£. 12. Explain the logic of depositary receipts. 13. A trader that works with Bank X took a short position of £5.989.265 when the $/£ exchange rate was 1.55. Subsequently, the exchange rate has changed to 1.61. Is this operation efficient from the point of view of the position taken by the trader? By how much has the bank’s liability changed because of the change in the exchange rate? 14. A CD/$ bank trader is currently quoting a bid-ask of 35-40, when the rest of the market is trading at CD1.3436-CD1.3441. What can we tell about the trader’s beliefs given his prices? 15. Define the concept of private equity. 16. Over the past X years, the exchange rate between the CHF and U.S. dollar, CHF/$, has changed from about 1.30 to about 1.60. Would you agree that over this X-year period, the Swiss goods have become cheaper for buyers in the United States? 17. The current spot exchange rate is €0.80/$ and the 3 month forward exchange rate is €0.7813/$. The 3 month interest rate is 5.6 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or €800,000. a Demonstrate how to realize a profit via covered interest arbitrage, assuming that you want to realize profit in terms of USD. Also determine the size of your arbitrage profit. b Assume that you want to realize profit in terms of euros. Present the covered arbitrage process and determine the arbitrage profit in EUR. 18. X sold some products to Y in Germany on credit and invoiced €10 million payable in six months. Currently, the 6-month forward exchange rate is $1.10/€ and the foreign exchange advisor for X predicts that the spot rate is likely to be $1.05/€ in 6 months. a. What is the expected gain/loss from the forward hedging? b. If you were the financial manager of X, would you recommend hedging this euro receivable? Why or why not? 19. Assume that a stock is expected to pay dividends at the end of year 1 and year 2 of $ 1.25 and $ 1.56, respectively. Dividends are expected to grow at a 5% rate thereafter. Assuming that ke is 11%, the value of the stock is closest to which of the following? A. 22.30$ B. 23.42$ C. 24.55$ 20. Assume you are a trader with XX Bank. You notice that XX is quoting €0.7627/$ and ZZ is offering CHF 1.1806/$. You find out that WW is making a direct market between the Swiss franc and the euro, with a current €/CHF quote of .6395. Show how you can make a triangular arbitrage profit by trading at these prices. Assume you have $6.275.225 with which to conduct the arbitrage. What happens if you initially sell dollars for CHF? What €/CHF price will eliminate triangular arbitrage? 21. A stock paid a $1 dividend last year. The risk-free rate is 5%; the expected return on the market is 12%; and the stock’s beta is 1.5. If dividends are expected to grow at a 5% rate forever, what is the value of the stock? A. $ 10 B. $ 15.25 C. $21.5 22. B. operates in cross-rate arbitrage. He obtains the following quotes: CHF 1.5971/$ AUD$1.8215/$ AUD$1.1440/CHF Does B. have an arbitrage opportunity based on these quotes? If there is an arbitrage opportunity, show the steps needed to make an arbitrage profit, and the profit obtained if B. uses $547.777.777 for this purpose.