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FIN542 International Financial Market Exam

1. This document contains a 3 question test on international financial markets. It provides instructions to candidates to answer all questions and specifies the duration, lecturers, and confidential nature of the exam. 2. Question 1 contains 6 subquestions related to spot and forward exchange rates for various currencies, interest rates, and calculations involving currency conversions. Question 2 involves calculations related to futures contracts and currency options. Question 3 presents arbitrage data and asks the candidate to construct a covered arbitrage strategy. 3. The test covers topics such as foreign exchange, forwards, futures, options, interest rates, and arbitrage opportunities. Candidates are asked multiple calculation-based questions to demonstrate their understanding of international financial concepts.

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Siti Nor Farahain Sahat
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466 views4 pages

FIN542 International Financial Market Exam

1. This document contains a 3 question test on international financial markets. It provides instructions to candidates to answer all questions and specifies the duration, lecturers, and confidential nature of the exam. 2. Question 1 contains 6 subquestions related to spot and forward exchange rates for various currencies, interest rates, and calculations involving currency conversions. Question 2 involves calculations related to futures contracts and currency options. Question 3 presents arbitrage data and asks the candidate to construct a covered arbitrage strategy. 3. The test covers topics such as foreign exchange, forwards, futures, options, interest rates, and arbitrage opportunities. Candidates are asked multiple calculation-based questions to demonstrate their understanding of international financial concepts.

Uploaded by

Siti Nor Farahain Sahat
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

CONFIDENTIAL 1 BA/DEC 2020/FIN542/TEST1

UNIVERSITI TEKNOLOGI MARA


TEST ONE

COURSE : INTERNATIONAL FINANCIAL MARKET


COURSE CODE : FIN542
DATE : 17 DEC 2020
TIME : 2.00 PM – 4.00 PM
DURATION : 2 HOURS
LECTURER : NURULASHIKIN ROMLI
NUR LIYANA MOHAMED YOUSOP
ZURAIDAH SIPON

INSTRUCTIONS TO CANDIDATES

1. This question paper consists of 3 Questions.

2. Answer ALL questions in the Answer Booklet. Start each answer on a new page.

3. Do not bring any material into the examination room unless permission is given by the
invigilator.

4. Answer ALL questions in English.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO


This examination paper consists of 4 printed pages

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL


CONFIDENTIAL 2 BA/DEC 2020/FIN542/TEST1

QUESTION 1

RHY Bank quoted the following exchange rate in ringgit (RM) for spot, one-month forward,
two-month forward and, three-month interest rate in percentage (%) as follows:

Spot rate 1-month forward 2-month forward


1 Brunei Dollar (BND) 3.0000-30 45/30 65/50
1 Canadian Dollar (CAD) 3.1000-10 CAD appreciate by 10% 60/50
100 Japanese Yen (¥) 3.9500-30 20/65 35/70

Malaysia Brunei Canada Japan


3-month interest rate per annum 4.0 5.0 6.0 6.5

a) If a customer has 50,000 ringgits today, compute its conversion value in Canadian
dollars.
(1 mark)

b) If a customer needs 50,000 yen in 30 days, compute its conversion value in ringgits.

(2 marks)

c) If a customer is expected to receive BND100,000 in 60 days, compute its conversion


value in ringgit.
(2 marks)

d) Compute the annualized premium or discount on the one-month forward offer rate of
¥ in CAD.
(5 marks)

e) Compute the 3-month percentage spread of the BND/RM.


(4 marks)

f) Based on your answer in (d), interpret the value of yen after one month.
(1 mark)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL


CONFIDENTIAL 3 BA/DEC 2020/FIN542/TEST1

QUESTION 2

a) On October 10, Miss Sally went short five futures contract of Euro Dollar (EUR$) at an
opening price of US$1.5630. The closing on October 10, 11, and 12 were US$1.5750,
US$1.5710, and US$1.5600 respectively. She closed out the position on October 12.
Contract size for EUR$ futures contract is 125,000 and commission is US$165.

i) Calculate the amount of profits/losses of her marking to market on the future


contract.
(6 marks)

ii) Assume that Miss Sally begin with an initial margin of US$10,000 and
maintenance margin of US$5000. What is her cash balance as of close of
business on October 12?
(4 marks)

b) Sarah is a currency trader at Bank of America, United States. She speculates that the
Malaysian Ringgit will decline significantly against the US dollar. The current spot rate
is USD0.3982/RM. She must choose between the following options:

Option Exercise price Premium


Put US$0.4382/RM US$0.0035/RM
Call US$0.4382/RM US$0.4382/RM

i) If the buyer exercise the option, calculate her net profit/loss. (Assume
RM75,000 per contract).
(6 marks)
ii) Compute the total premium paid.
(2 marks)
iii) In order for the buyer to breakeven, what should be the spot rate?
(2 marks)

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL


CONFIDENTIAL 4 BA/DEC 2020/FIN542/TEST1

QUESTION 3

a) Mr. Danial, an Australian arbitrageur, has the following data.

Spot rate (USD per AUD) : 0.7420


Six months’ forward contract (USD per AUD) : 0.7630

Six-month USD interest rate : 7.5%


One-year AUD interest rate : 10.6%

He also being offered USD100,000 or AUD250,000 credit facility. Construct a covered


arbitrage strategy for Mr. Danial.
(13 marks)

b) Explain how an arbitrage opportunity would exist.


(2 marks)

END OF QUESTION PAPER

© Hak Cipta Universiti Teknologi MARA CONFIDENTIAL

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