Please ANSWER ALL questions NOT one of them with EXPLANATION: 1.Everything else
ID: 2792373 • Letter: P
Question
Please ANSWER ALL questions NOT one of them with EXPLANATION:
1.Everything else equal, call and put option premiums will be higher for currencies with high volatility
A.True
B.False
2. In order for locational arbitrager to be possible, the asking price at one bank must be less than the bid price at another bank.
A.True
B.False
3. Suppose that we start with an intimal exchange rate of $1.45/£, U.S. inflation turns out to be 5% this year and British inflation is 2%. If the new exchange rate is $1.43/£, we would characterize U.S. export competitiveness as having?
A.Impossible to tell with information given
B.Improved
C.Deteriorated
D.Remained constant
4. If you enter into an interest rate swap in which you receive floating and pay fixed, the fixed rate you pay is equal to the bank’s ask price
A.True
B.False
5. A longer time to maturity makes call options more valuable and put options less valuable.
A.True
B.False
Explanation / Answer
1.
Volatility means risk, so if risk that is volatility on call and Put option is high then premium of Call and Put option must be higher.
Statement is true.
2.
Asking price is always greater than Bid price. locational arbitrager earns risk free profit by using different bank quote of exchnage rate of using cross exchnage rate between more than two currency.
Statement is false.
3.
current exchange between Dollar and GBP is $1.45 per GBP. Inflation rate in USA is higher than Inflation rate in Britain. So dollar must be depreciate again GBP if purchasing power parity holds true. New exchange rate between $1.43 per GBP.
From given information it is impossible to characterize competitiveness of U.S. export .
Option (A) is correct answer.
4.
If you enter into an interest rate swap in which you receive floating and pay fixed, the fixed rate you pay is equal to the bank’s ask price or the rate which bank offer loan at fixed rate.
Statement is true.
5.
Because of time value of money A longer time to maturity makes call options less valuable and put options also less valuable.
Statement is false.