Temas

  4.
 A
 foreign
 exchange
 trader
 with
 a
 U.S.
 bank
 took
 a
 short
 position
 of
 £5,000,000
  when
 the
 $/£
 exchange
 rate
 was $1.55/£.
 Subsequently,
 the
 exchange
 rate
 has
  changed
 to
 $1.61/£.
 Is
 this
 movement
 in
 the
 exchange
 rate
 good
 from
 the
 point  of
 view
 of
 the
 position
 taken
 by
 the
 trader?
 Why?
 
  Solution:
  The
 increase
 in
 the
 $/£
 exchange
 rate
 implies
 that the
 pound
 has
  appreciated
 with
 respect
 to
 the
 U.S.
 dollar.
 This
 is
 unfavorable
 to
 the
 trader
  since
 the
 trader
 has a
 short
 position
 in
 pounds
 (the
 trader
 is
 actually
  selling
 low
 in
 pounds
 and
 to
 close
 his
 position
 he
 has
 to
 buy high
 in
  pounds).
 
 
 
 
  7.
 Assume
 that
 the
 spot
 exchange
 rate
 between
 U.S.
 dollar
 and
 Pound
 Sterling
 is
  $1.25 per
 Pound
 and
 one-­‐year
 forward
 rate
 equals
 to
 $1.2
 per
 pound.
 The
 real
  interest
 rate
 on
 a
 risk-­‐free
 government
 security is
 2
 percent
 in
 both
 England
 and
  the
 United
 States.
 The
 U.S.
 inflation
 rate
 is
 5
 percent.
 What
 is
 England’s inflation
  rate
 if
 the
 equilibrium
 relationships
 hold?
 What
 is
 England’s
 nominal
 required
  return
 on
 risk-­‐free
 government
 securities?
   Solution:
  We
 know
 the
 spot
 and
 forward
 rates
 and
 U.S.
 inflation.
 The
 real
 and
  nominal
 interest
 rates
 are
 not...