Part 5. Parity conditions

1a. Forecast the expected exchange rate in one year for the Russian ruble.

b. What parity condition does this rely on?

2a. Forecast the expected exchange rate in six months for the Brazilian real.

b. What parity condition does this rely on?

3a. What is the expected nine month forward rate for the Ghanaian cedi?

b. What parity condition does this reflect?

Q-2 (25p)        Let us assume that around Dec. 2019, the spot exchange rate between the Swiss Franc and U.S. dollar was 1.0485 (USD per SWF). Interest rates in the United States and Switzerland were 0.75% and 0.25% per annum, respectively with continuous compounding. Assume also that the four-month forward exchange rate was 1.0630 (US$ per SWF).

1. Is there an arbitrage opportunity for you to make money? (Hint: Recall how to find no-arbitrage forward price!)

2. If there is NO arbitrage opportunity, explain WHY?

3. If there is an arbitrage opportunity, using 1.0m USD or 1.0m SWF, how much arbitrage profit you can have in four-month in USD?

Suppose that the spot price of the Canadian dollar is U.S. $0.95 and that the Canadian dollar/U.S. dollar exchange rate has a volatility of 8% per annum. The risk-free rates of interest in Canada and the United States are 3% and 6% per annum, respectively. Calculate the value of a European call option to buy one Canadian dollar for U.S. $0.95 in nine months. Use put-call parity to calculate the price of a European put option to sell one Canadian dollar for U.S. $0.95 in nine months.

What is the CAD-denominated price of a European call option to buy one U.S. dollar for Canadian $1.0526(=1/0.95) in nine months?

1. Forward versus Money Market Hedge on Receivables. Assume the following information:

                180‑day U.S. interest rate = 1.5% per 180 days or 3% per year compounded semi-annually

                180‑day British interest rate = 1% per 180 days or 2% per year compounded semi-annually

                180‑day forward rate of British pound = $1.32

                Spot rate of British pound = $1.33

      Assume that Riverside Corp. from the United States will receive 200,000 pounds in 180 days. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated revenue for each type of hedge.

How would you define income inequality? How is income inequality measured? What has happened to income inequality in the United States since the end of the Second World War in 1945? What evidence can you provide to support your answer? What are the reasons for the changes in income inequality since 1945.

Suggestion: Click here to visit the Web site for the documentary film Inequality for All. The site enables you to rent or purchase the film, if you choose. Or you can click on “Graphics Package” to download a free copy of informative graphics from the film. Take a look at those. Summarize what you learn, and share your thoughts.

Due to the COVID-19 pandemic, the Federal Government stepped in and legislated in March 2020 to temporarily suspend key aspects of insolvent trading law in the Corporations Act 2001 (Cth) for a period of six months. The suspension was recently extended to last until 31 December 2020. In view of these events, do you think that the Federal Government should permanently remove (ie. abolish) Australian insolvent trading law, especially considering that no such equivalent law exists in the United States? If so, discuss why? If not, discuss why not? Or, if you think insolvent trading law should be retained, but modified, discuss why?

Please provide long explanation why or why not. and the laws that support the claims.

Let us assume that around Dec. 2019, the spot exchange rate between the Swiss Franc and U.S. dollar was 1.0485 (USD per SWF). Interest rates in the United States and Switzerland were 0.75% and 0.25% per annum, respectively with continuous compounding. Assume also that the four-month forward exchange rate was 1.0630 (US$ per SWF)

1. Is there an arbitrage opportunity for you to make money? (Hint: Recall how to find no-arbitrage forward price!)

2. If there is NO arbitrage opportunity, explain WHY?

3. If there is an arbitrage opportunity, using 1.0m USD or 1.0m SWF, how much arbitrage profit you can have in four-month in USD?

The purpose of this assignment is to familiarize yourself with the intricacies of health care reform. Write a 1,000-1,250 word paper that addresses the following: Analyze the nature of health care reform in the United States, both in the past and present.

Discuss the two needed elements in health care reform and why they hold importance.

Evaluate a minimum of three different health care reform strategies and provide a rationale for each.

Choose one of the three areas (above) and provide a specific example of health care reform at either the state or national level:

(a) What was it called? (b) Who introduced it? (c) When was it introduced? (d) What was its ultimate purpose? and (e) Did it succeed? If not, why not?

Although studies continue to show smoking leads to significant health problems, 20% of adults in the United States smoke. Consider a group of 300 adults.

If required, round your answers to four decimal places. Use Table 1 in Appendix B. If your answer is zero, enter "0".

c. What is the probability that from 35 to 70 smoke? Used continuity correction factor.

A binomial probability distribution has p = .20 and n = 100.

If required, round your answers to four decimal places. Use “Continuity correction factor, if necessary”. Use Table 1 in Appendix B.

c. What is the probability of exactly 22 successes?