Question

In 2015, Switzerland stopped pegging its currency to the Euro, and instead reduced interest rates in an attempt to lower the value of its currency. This shift was a switch from _____ to _______

Question 4 options:

	Direct Intervention / Indirect Intervention
	Capital Controls / Indirect Intervention
	Indirect Intervention / Direct Intervention
	Direct Intervention / Capital Controls

In order to prevent capital flight, and maintain the stability of the bolivar (Venezuela's currency), the Chávez administration in January 2003, made it more difficult for investors to exchange bolivars for dollars. This is an example of

Question 5 options:

	Foreign Direct Investment
	Direct intervention
	Indirect intervention
	Capital Controls

Tyson Inc. wants to hedge an account receivable of ¥595 million to be received in six months using a money market hedge. Given a yen borrowing rate of 6% APR and a spot exchange rate of ¥119/$ how much is the yen denominated loan Tyson Inc. will need to borrow today worth when converted into dollars?

Question 6 options:

	$4,926,108
	$4,716,981
	$5,000,000
	$4,854,369

Tyson Inc. wants to hedge an account receivable of ¥595 million to be received in six months using a money market hedge. Given a yen borrowing rate of 6% APR how much will Tyson Inc. need to borrow today in order to match the payment it will receive in six months?

Question 7 options:

	¥577.7 million
	¥595 million
	¥561.3 million
	¥586.2 million

Tyson Inc. is entering into a 3-year pay-euros and receive-dollars cross currency swap. The 3-year swap interest rates are quoted in the table below. At what rate will Tyson receive dollars and at what rate will Tyson pay euros?

Question 8 options:

	Receive at 2.28% and pay at 1.89%
	Receive at 2.23% and pay at 1.95%
	Receive at 2.28% and pay at 1.95%
	Receive at 2.23% and pay at 1.89%

Tyson Inc. has an account payable in Swedish krona due in 60 days. Which would be an appropriate hedge?

Question 9 options:

	Enter into a forward contract to sell Swedish krona in two months
	Borrow Swedish krona for 60 days for the purpose of a money market hedge
	Buy a put option on the Swedish krona, expiring in 60 days
	Buy a call option on the Swedish krona, expiring in 60 days

Mr. Saso is planning to take a loan of $5 million to be repaid over 10 years. He is contemplating different strategies and decides to borrow $500,000 at 3% interest rate this year and then renew the loan annually. What has Mr. Saso’s strategy achieved?

Question 12 options:

	The strategy eliminates both credit risk and repricing risk
	The strategy eliminates credit risk but not repricing risk
	The strategy leaves Mr. Saso exposed to both credit risk and repricing risk
	The strategy eliminates repricing risk but not credit risk

Mr. Saso is planning to take a loan of $5 million to be repaid over 10 years. He is contemplating different strategies and decides to take a 10-year $5 million loan at a fixed rate of 4.5%. What has Mr. Saso strategy achieved?

Question 13 options:

	The strategy eliminates credit risk but not repricing risk
	The strategy leaves Mr. Saso exposed to both credit risk and repricing risk
	The strategy eliminates both credit risk and repricing risk
	The strategy eliminates repricing risk but not credit risk

You have a large interest payment to make three months from now, and you hedge it by selling a 3-month futures contract. If interest rates go up then

Question 14 options:

	Futures price falls and you earn a profit
	Futures price rises and you earn a loss
	Futures price falls and you earn a loss
	Futures price rises and you earn a profit

You have issued a loan to a wealthy friend and you are expecting a large interest payment to be made three months from now, and you hedge it by buying a 2-month futures contract. If interest rates go up then

Question 15 options:

	Futures price rises and you earn a loss
	Futures price falls and you earn a loss
	Futures price rises and you earn a profit
	Futures price falls and you earn a profit

Company A borrows $2 million at Libor + 3% for five years and Company B takes a $2 million five-year loan at a fixed 7% interest rate. The two companies enters into an interest rate swap arrangement, where Company A will pay Company B a fixed 6% interest rate on a notional $2 million and Company B will pay Company A Libor + 2% on a notional $2 million. What has been accomplished?

Question 16 options:

	Both companies have been able to link the payment to Libor
	Company A has achieved payments mirroring a fixed interest rate while Company B will be paying a floating rate
	Company A has achieved payments mirroring a floating interest rate while Company B has achieved a fixed rate
	Both companies will be paying the same interest rate for the duration of the loan

Answer 1

Question 4

Answer is Indirect Intervention / Direct Intervention.

When you peg your currency to other country's currency then your currency moves as per changes in the other country's currency and interest rates. so, it's indirect intervention because you can't change interest rates of that other country and can't do much to control the movements in your currency.

when you stop pegging your currency then you can lower the value of your currency by reducing interest rates and taking other measures. so it's direct intervention.

Question 5

Answer is Capital Controls.

Capital controls are various measures like taxes, tariffs and difficult foreign exchange conversion to prevent foreign capital invested in the country to move out of the country. by making exchange of bolivars for dollars difficult, Venezuela can prevent capital flight. if investors take bolivars with them and convert it to dollars in their country then they can incur foreign exchange losses which will stop them to take capital out of Venezuela.

Question 6

Answer is $4,854,369.

First we need to calculate present value of ¥595 million.

present value = future value/(1+six-month yen interest rate) = ¥595,000,000/(1+0.06/2) = ¥595,000,000/1.03 = ¥577,669,902.9126214‬

time period is six months. so, interest rate will also be for six months.

dollar amount you need to borrow = present value of yen amount/spot exchange rate

dollar amount you need to borrow = ¥577,669,902.9126214‬/(¥119/$) = $4,854,369

Question 7

Answer is ¥577.7 million.

we need to calculate present value of ¥595 million.

present value = future value/(1+six-month yen interest rate) = ¥595,000,000/(1+0.06/2) = ¥595,000,000/1.03 = ¥577,669,902.91 or ¥577.7 million

time period is six months. so, interest rate will also be for six months.