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Currency
        Answers
                Spot rate    Eur/Gbp    1.28
                    igbp    3%
                    ieur    4%
            a    180-day forward rate
                Spot exchange rate* (1+ interest rate in domestic market/ (1+ interest rate in foreign)
                1.292
            Forward Premium         (Forward - Spot rate ) / spot rate *(360/180)
                    0.49%
            b    When a security is bought in one market and immediately sold in another market at a higher profit, this is known as arbitrage.
                Traders also want to take advantage of the arbitrage incentive by purchasing a portfolio on a foreign exchange
                where the share price has not yet been adjusted for the fluctuating exchange rate.
                Yes, there is an arbitrage opportunity. As forward price is different from the spot rate with good value.
            c    Profit with 10m GBP
                Forward rate    1.27
                1 euro    1.28    Gbp
                    Profit of 10 million gbp means
                    we will buy the forward and sell the spot
                Buy forward    1.27    1000000000    1270000000
                Short spot    1.28    1000000000    1280000000
                    After expiry price will be same in both the market
                Price expires     1.3
                Forward    30000000
                spot    -20000000
                Profit    10000000
                Price expires    1.25
                Forward    -20000000
                spot    30000000
                Profit    10000000
            d    Simply, short the forward contract
                Hedging products such as forward contracts are a form of hedging option.
                They allow a company to shield itself from currency market fluctuations
                by setting the exchange rate for a fixed period of time on a pre-determined amount of currency.
        Buy    Eur/Gbp    Spot     1.28    100000000    128000000
        Short        Forward     1.29    100000000    129000000
                For hedging company will buy the spot and sell the forward
                Price expires    1.27
                Spot     -1000000
                Forward    2000000
                Profit    1000000
                Price expires    1.31
                Spot     3000000
                Forward    -2000000
                Profit    1000000
            e
The nominal exchange rate E is specified as the number of domestic currency units required to purchase one unit of a given foreign currency. A reduction in this variable is referred to as nominal currency appreciation. (A downward modification of the rate is referred to as revaluation in the fixed exchange rate regime.) A rise of this attribute is referred to as nominal depreciation of the currency.
The Real exchange rate R is described as the ratio of the price level abroad to the price level at home, with the international price level translated into domestic currency units using the current nominal exchange rate. R=(E.P*)/P, where P* denotes the international price level and P denotes the domestic price level. A reduction in R is referred to as appreciation of the actual exchange rate, while an increase is referred to as depreciation. The actual cost shows us how many times more or less goods and services can be bought internationally (after translation into a foreign currency) for a given price than in the domestic market. In reality, changes in the actual exchange rate are more significant than changes in the absolute amount. In reality, changes in the actual exchange rate are more significant than changes in the absolute amount. In relation to the nominal exchange rate, the actual exchange rate is still “floating,” so it will adjust due to price-level fluctuations even in the presence of a fixed nominal exchange rate E.
Bond
            Semiannual
        First    Time    20    Years    40
            Par value    $ 1,500.00
            Coupon     10%    0.05
            Coupon Pmt    $ 75.00
            Interest rate    9%    0.045
        a    Price of the Bond    $ -1,638.01
        2nd
            Share    $ 162.00
            Dividend    $ 8.00
            growth    4%
            Required rate    9%
            Bond price and YTM
        b    The price of a bond changes inversely to its YTM. A reduction in YTM lowers the price, while a rise in YTM raises the price...