From page 530, reading 13, example 3:
#2:Spot rate (CHF/GBP): 1.4939/1.4941. Six months forward points: -56.6/-54.0
The all-in rate that the dealer will be quoted today by another dealer to see the CHF six months forward against the GBP is closest to:
A. 1.48825 B. 1.48835 C. 1.48870 Answer is C.
From page 538 reading 13, example 4:
#5: An Austrialian-based income asset manger is deciding how to allocate money. Note the base currency in the exchange rate quote (AUD) is the domestic currency for the asset manager.
JPY/AUD spot rate (mid-market): 79.25. One-year forward points (mid-market): -301.9. One year Australian deposit rate:5%. One year Japanese deposit rate: 1%
If the asset manager completely hedged the currency risk associated with a one-year Japanese deposit using a forward rate contract, the one-year all-in holding return, in AUD, would be closes to:
A. 0%, B.1% C 5%. Answer is C.
#6: The manager then collects info, with JPY One-year Libor .10%, USD .10%, and GBP 3.00%, to estimate the investment returns and future ex rate movements. If Covered Interest Rate parity holds, the all-in one-year investment return to a Japanese investor whose currency exposure to the GBP is fully hedged is closest to:
A. .10% B. .17% C. 3.00%. Answer is A
From page 559 reading 13, example 8:
#1: She examines two countries—one DM and one EM—and notes that the DM country has what is considered a low-yield safe haven currency while the EM country has a high-yield currency whose value is more exposed to fluctuations in the global economic growth rate. Kwan is trying to form an opinion about movements in the exchange rate for the EM currency.
- All else equal, the exchange rate for the EM currency will most likely depreciate if the:
- long-run equilibrium value of the high-yield currency is revised upward.
- nominal yield spread between the EM and DM countries increases over time.
- expected inflation differential between the EM and DM countries is revised upward.
Answer is C.
Institute, CFA. 2018 CFA Program Level II Volume 1 Ethical and Professional Standards, Quantitative Methods, and Economics. CFA Institute, 07/2017. VitalBook file.
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