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1.MCGG is Australian MNC that exports cricket equipment to Asia. MCGG has exposure to both the...

1.MCGG is Australian MNC that exports cricket equipment to Asia. MCGG has exposure to both the Indian Rupee (INR) and the Pakistani Rupee (PKR). 60% of the MCGG's funds are INR and 40% are PKR. The standard deviation of exchange movements is 7% for INR and 8% for PKR. Correlation coefficient for the two currencies is 0.50. Based on this information, the standard deviation of these two-currency portfolio is

	A.	0.0643
	B.	0.0623
	C.	0.0586
	D.	0.0485
	E.	0.0356

2.The interest rate in the Sri Lanka is 12.5%. The interest rate in the Australia is 1.5%. The spot rate for the Sri Lankan Rupee is A$0.0082. According to the international Fisher effect (IFE), the Sri Lankan Rupee should adjust to a new level of:

	A.	A$0.0074.
	B.	A$0.0083.
	C.	A$0.0092.
	D.	A$0.0091.
	E.	A$0.0082.

3.A bank has quoted the following exchange rates: A$1.21/US$ and €0.60/A$. Which of the following is a correct cross-rate for the above rates?

	A.	US$0.7260 / €
	B.	US$1.3774 / €
	C.	€1.3774 / US$
	D.	€2.0167 / US$
	E.	None of the options.

4.The FX dealer has two quotes. The exchange rate between Sri Lankan Rupee and the Australian dollar is Rs.120 / A$. The exchange rate between Myanmar Kyat and the Australian dollar is MMK895 / A$. Assume that the Australian dollar is the home currency. What is the exchange rate between the two foreign currencies?

	A.	Rs. 7.458 / MMK.
	B.	Rs. 7.845 / MMK.
	C.	Rs. 0.134 / MMK.
	D.	Rs. 0.127 / MMK.
	E.	none of the above.

5.The 60-day period lending rate for the Mexican Peso (MXN) is 0.80 percent and the 60-day period borrowing rate for the Australian dollars (A$) is 1.05 percent. Delta bank expects the exchange rate of the MXN to appreciate from its current level of A$0.063 to A$0.070 in 60 days. Assume that Delta can borrow A$ 1,000,000.

If the MXN appreciates to A$0.07 in 60 days as expected, what is Delta’s profit in Australian dollars?

	A.	A$ 1,578,096
	B.	A$ 114,778
	C.	- A$ 2500
	D.	A$ 110,467
	E.	A$ 109,500

Expert Solution

1. The standard deviation of a portfolio is given by

Where Wi is the weight of the security i,

is the standard deviation of returns of security i.

and is the correlation coefficient beltween returns of security i and security j

So, standard deviation of portfolio returns =sqrt (0.6^2*0.07^2+0.4^2*0.08^2+2*0.6*0.4*0.07*0.08*0.5)

=sqrt(0.004132)

=0.0643 or 6.43% (option A)

2. According to the international Fisher effect (IFE),

the spot rate after one year = Spot rate today * (1+ interest rate in Australia)/(1+ interest rate in SriLanka)

=A$ 0.0082*1.015/1.125

=A$ 0.0074 (option A)

3. A$1 is equivalent to 0.6 Euro

A$1.21 is equivalent to USD 1

or A$1 is equivalent to USD 1/1.21

So, USD 1/1.21 = Euro 0.6

USD 0.8264463 = Euro 0.6

USD 1 = Euro 0.6/0.8264463

USD 1 = Euro 0.726

or 1 Euro = USD 1/0.726 or USD 1.3774105 (Option B is correct)

4. A$1 = Rs.120 = MMK 895

So, Rs1 = MMK 895/120 = MMK 7.45833

or 1 MMK = Rs. 1/7.45833 = Rs. 0.13407 (Correct option is C)

jeff jeffy answered 1 year ago

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