Module 5 Honors Quiz >> Financial Markets
1.If you are a Japanese producer who sells products in the US, you want a foreign exchange future without going through the futures market. So, you borrow money in dollars with an interest rate of 5% and immediately convert it to yen at a rate of 1 dollar to 100 yen. Then you put the money in a Japanese interest-bearing account with an interest rate of 10%. What is the forward exchange rate in this case?
- 104.76 yen to dollars
- 105.12 yen to dollars
- 94.88 yen to dollars
- 95.45 yen to dollars
2. Why is it difficult to determine the spot price of oil?
- Oil is highly dependent on politics and thus can change very rapidly.
- Oil is primarily sold in long-term contracts, so there is no clear spot price of oil.
- Oil is primarily traded in private markets, so very few people know how much money it is selling for.
- Oil cannot be stored efficiently, and thus special types of futures contracts are needed which do not incorporate spot price.
3. Intel Corp has a share price of $31.63 and a yearly dividend of $1.50 per year. An option with a strike price of $27 has a call price of $6.10, and a put price of $2.65. It has a 1 yr expiry period. Assuming no interest, what is the predicted share price according to the put-call parity relationship?