Question

Answer the following questions:

1.)A german sports car is selling for 70,000 euros.
What is the dollar price in the United States for the German car if the exchange rate is 0.90 euros per dollar?

3.) An investor in Canada purchased 100 shares of IBM,on January 1 at $ 93.00 per share.IBM paid an annual dividend of $0.72 on December 31.The stock was sold that day as well for 100.25.The exchange rate was $0.68 per Canadian dollar on January 1 and $0.71 per Canadian dollar on December 31.What is the investor’s total return in Canadian dollars?

5.) The six month forward rate between the British pound and the U.S dollar is $ 1.75 per pound. If Six month interest rates are 3% in the United Stated and 150 basis points higher in England, what is the current rate exchange rate?

7.) The new Zealand dollar to U.S dollar exchange rate is 1.36 and the British pound to U.S dollar exchange rate id 0.62.If you find that the British pound to New Zealand dollar were trading at 0.49,what would you do to earn a riskless profit?

9.) The Brazilian real is trading at 0.375 real per U.S dollar. What is the U.S dollar per real exchange rate?

Page 396-397 questions

1.)The federal reserve purchases $1,000,000 of foreign assets for $ 1,000,000.Show the effect of this open market operation using T-accounts.

2.)Again the federal reserve purchases $ 1,000,000 of foreign assets. However to raise the funds the trading desk sells $ 1,000,000 in T bills show the effect of this open market operation using t-accounts.

3.) If the interest rate is 4% on euro deposits and 2% on dollar deposits, while the euro is trading at $1.30 per euro, what does the market expect the exchange rate to be one year from now?

4.)If the dollar begins trading at $ 1.30 per euro, with the same interest rates given in Problem 3,and the ECB raises interest rates so that the rate on euro deposits rises by 1 percentage point, what will happen to the exchange rate.(assuming that the expected future exchange rate is unchanged.)

5.)If the balance in the current account increases by $ 2 billion while the capital account is off $3.5 billion what is the effect on governmental international reserves?

Page 423-424

2.) X-bank reported on ROE of 15% and the ROA of 1%how well capitalized is this bank?

4.) Refer to the previous question. In 1981,congress allowed S&Ls to sell mortgages at a loss and to amortize the loss over the remaining life of the mortgage. If this were used for the previous question, how would the transaction have been recorded? What would be the annual adjustment? When would that end?

6.) A bank estimates that demand deposits are, on average $ 100 million with a standard deviation of $ 5 million .The bank wants to maintain a minimum of 8% of deposits in reserves at all times.
What is the highest expected level of deposits during the month? What reserves do they need to maintain. Use a 99% confidence level.

8.) New Bank decides to invest $ 45 million In a 30 –day T-bills.
The T-bills are currently trading at $ 4,986.70.Including commissions.)
For $ 5,000 face value instrument. How many do they purchase?
What does the balance sheet look like.?

10.) To meet shortfall in the previous question,New Bank will borrow the cash in the federal funds market. Management decides to borrow the needed funds for the remainder of the month now 29 days.)
The required yield on a discount basis is 2.9%.What does the balance sheet look after this transaction?

12.) New Bank also pays off its federal funds borrowed.
How much cash is owned? How is this recorded?

14.) Calculate Newbanks ROA and NM for its first month.
Assume that net interest equal EBT and that NewBank is in the 34% tax bracket.

16.) If New bank were required to establish loan loss reserve at 0.25% of the loan value for commercial loans, how would this be recorded?Recalcualte New Banks ROE and final balance sheet including its tax liabilities.

18.) After making payments for three years one of the mortgage borrowers defaults on the mortgage New Bank immediately takes possession of the house and sells it at auction for $ 175,000.Legal fees amount to $ 25,000.If no loan loss reserve was established for the mortgage loans,how is this even recorded?

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