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INS 3032 Code 1

This document contains instructions and questions for an examination in International Finance. It is divided into two parts. Part 1 contains 4 multiple choice and calculation questions worth 40% of the exam. These questions cover topics like arbitrage opportunities in currency exchange rates, hedging currency risk with options and futures, and interest rate swaps. Part 2 contains 2 essay questions worth 60% of the exam. The first question asks students to assess the economic impact of the Russia-Ukraine war through impacts on commodity markets, financial markets, trade, and exchange rates. The second questions asks how rising global oil prices will impact inflation in Vietnam and the USD-VND exchange rate, and proposes suitable monetary policies for the State

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149 views3 pages

INS 3032 Code 1

This document contains instructions and questions for an examination in International Finance. It is divided into two parts. Part 1 contains 4 multiple choice and calculation questions worth 40% of the exam. These questions cover topics like arbitrage opportunities in currency exchange rates, hedging currency risk with options and futures, and interest rate swaps. Part 2 contains 2 essay questions worth 60% of the exam. The first question asks students to assess the economic impact of the Russia-Ukraine war through impacts on commodity markets, financial markets, trade, and exchange rates. The second questions asks how rising global oil prices will impact inflation in Vietnam and the USD-VND exchange rate, and proposes suitable monetary policies for the State

Uploaded by

Phạm Thúy An
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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EXAMINATION

Code: 1

Lecturer’s Signature & full name


Program: VNU
Course Code: INS3032
Course Title: International Finance
Level: Undergraduate Date: ………………………………
Time allowed: 24 hours Department’s Signature & full
Date: 11 Jun 2022 name

Time: 5:30pm – 6:15pm

Date: ………………………………

Instructions to students:

1. Opened book assignment


2. There are two parts of this assignment:
- Part 1: Exercises (40%)
- Part 2: Essay question (60%)

This exam paper contains 03 pages, including the cover page.

1
Part 1: Exercises (40%)
1. Question 1 (10 points):
Based on the following data, is there any arbitrage opportunities? Please detail the
action plan to generate arbitrage profit/loss.
Spot rate CAD/EUR 0.7322 – 44
180 day - Forward rate CAD/EUR 0.7330 – 58
CAD’s APR 5% - 6%
EUR’s APR 7% - 8%
2. Question 2 (15 points):
Google will receive a payment totaling €10 million next month from Italian
suppliers. It can buy euro put options with a strike price of $1.07 at a premium of 2.0
cents per euro. The spot price of the euro is currently $1.05, and the euro is expected to
trade in the range of $1.01 to $1.20. Google also can take a short position in the euro
futures contract with futures price at $1.03.
a. How many options and futures contracts will Google need to protect its payment?
Each contract size is €62,500 for options and €125,000 for futures and calculate
the breakeven points (2 points).
b. Diagram Google's profit and loss associated with the put option position and
futures position within its range of expected exchange rates. Ignore transaction
costs and margins (4 points).
c. Calculate what Google would gain or lose on the option and the future within the
range of expected future exchange rates at three points: $1.01, $1.06 & $1.11 (9
points).
3. Question 3 (5 points):
Alpha and Beta Companies can borrow for a ten-year term at the following rates:
Alpha Beta
Fixed-rate borrowing cost 5.0% 7%
Floating-rate borrowing cost LIBOR+1% LIBOR
a. Calculate the quality spread differential (QSD). How do Alpha and Beta
swap their borrowings?
b. Calculate all – in - cost in which both Alpha enjoys 60% of total cost savings
while Beta enjoys 40% total cost savings in their borrowing costs.
c. Suppose a bank charges 1% to arrange the swap and Alpha and Beta split the
resulting cost savings. Calculate all – in – cost in this case.

2
4. Question 4 (10 points):
Suppose that the US government imposes higher tax applied on rice imported from
Vietnam. How do these events affect exchange rates between USD and VND on the
foreign exchange market (FX)? The central bank of Vietnam (SBV) would like to
maintain the previous rate. What actions they will do?

Part 2: Essay question (60%)


Note: Word count for each answer must be included. All plagiarism types will get ZERO
for the module.
1. Question 1 (40 points): (Word limit is 700 words):
On 24 February 2022, Russia invaded Ukraine and this conflict is threatening global
economic growth. Assess the economic impact of the Russia - Ukraine war through
multiple channels, such as commodity and financial markets, international trade,
exchange rates, etc.?
2. Question 2 (20 points): (Word limit is 500 words):
Global oil and gasoline prices have been rising globally, especially since Russia put
its forces on the Ukraine border in February 2022. In Vietnam, fuel prices have
continuously increased and reached the highest record in history this May. How will this
price hike affect potential inflation in Vietnam and the exchange rate between USD and
VND on the FX market? Propose suitable monetary policy for the State Bank of
Vietnam - SBV.

---------The End--------

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