Date: 30 April 2022 Course: BBCF4073 International Finance

FINAL
ASSESSMENT
Faculty of Business and Management

Course :
BBCF4073
International Finance

Date : 30 April 2022

Module Lecturer : Noor Fadzilah Mohamad

(noorfadzilah.mohamad@city.edu.my)

Total marks : 100 marks (worth 40%)

Instructions to candidates:

1. Write your name and student number on the front page.

2. Answer questions according to the instruction for each section.

3. Please submit your answer within the given timeframe.

4. You may answer these questions either using words format or by

scanning yourhandwritten answer and upload into the LMS portal.

Student ID : 202009040065

Student Name : JOANNES EMPATI AK ABONG

NIRC/Passport No : 980107-13-6511

Program : BACHELOR BUSINESS ADMINISTRATION

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Date: 30 April 2022 Course: BBCF4073 International Finance

QUESTION 1

a)

The primary function of Bank Negara Malaysia is to maintain Malaysia's monetary and
financial stability. This is to ensure Malaysia's economy continues to expand and prosper.
Having a strong, stable, progressive, and diverse financial sector that supports the actual
economy also helps. It also helps implement strategies to grow and deepen financial
markets, particularly the foreign currency market. This ensures that all businesses and
individuals have access to financial services. It also oversees the country's payment
system infrastructure, ensuring its efficiency and security. Bank Negara Malaysia
supervises this.

b)

Importing and exporting goods and services in the foreign currency market necessitate
payment. An exchange mechanism is necessary because each country has its own
currency. For this to work, foreign currency markets need to exist. Additionally, make
foreign money transfers easier to do. This means that the need for foreign currency is
increasing. On the foreign exchange market, everyone from individuals and corporations
to central banks and currency dealers and brokers buys and sells other currencies. The
value of one currency in relation to another is expressed in terms of its exchange rate.

c) Exchange rate:
OMR / MYR = 10.9800

The OMR 20,000 need to convert to MYR

Amount of MYR = OMR x exchange rate

= OMR 20,000 X 10.9800
= MYR 219,600

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Date: 30 April 2022 Course: BBCF4073 International Finance

d) There is 10 delegates

1 week = QAR 8,000 x 10 delegates

= QAR 80,000

Exchange rate: QAR / MYR = 1.16

MYR = QAR 80,000 X 1.16

= MYR 92,800

e) To change BND 5,000

MYR / IDR = 3,415.59
BND / IDR = 10,611.73

i. MYR = MYR X IDR

BND IDR BND

= 3,415.59 X 1

10,611.73

MYR = 0.32187

BND

ii. Exchange rate MYR/BND = 0.32187

RM 5,000 x 0.32187 = BND 1, 609.35

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Date: 30 April 2022 Course: BBCF4073 International Finance

QUESTION 2

a) Bid Ask
2.9800 2.9898

Indirect quote (KWD / EUR)

• Buying (bid)

KWD / EUR = KWD 5,000 X 2.9800 = EUR 14,900

• Selling (ask)

KWD / EUR = KWD 5,000 / 2.9898 = EUR 1,672.35

b)

TND/USD = 0.3400
TUNISIA
IDR/USD = 0.000070

INDONESIA TND/IDR = 4,850.61

i. TND/USD = 0.3400

IDR/USD = 0.000070

TND/IDR = 0.3400 X 1 / 0.000070

= 4,857.14

Yes. The amount 4,857.14 compared against TND/IDR in Indonesia of 4,850.61, the
differences indicates that there are arbitrage opportunities.

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Date: 30 April 2022 Course: BBCF4073 International Finance

ii. Profit/loss if investments start IDR 50,000,000.

Clockwise

• IDR USD TND IDR

TND/IDR = 4,850.61 DR/USD = 0.000070

(X) IDR (X)

TND USD

TND/USD = 0.3400

(÷)

IDR (X 0.000070) USD (÷ 0.3400 ) TND (x 4,850.61) IDR

50,000,000 3,500.00 10,294.12 49,932,750

Starting: 50,000,000

Ending: 49,932,750

Loss: IDR 67,250

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Date: 30 April 2022 Course: BBCF4073 International Finance

Contraclockwise

• IDR TND USD IDR

TND/IDR = 4,850.61 DR/USD = 0.000070

(÷) IDR (÷)

TND USD
TND/USD = 0.3400

(x)

IDR (÷4,850.61) TND (x 0.3400 ) USD (÷ 0.000070) IDR

50,000,000 10,307.98 3,504.71 50,067,340.60

Starting: 50,000,000

Ending: 50,067,285.71

Profit: IDR 67,340.57

iii. Therefore, counterclockwise will be choose because the arbitrage profit is

IDR 67,340.57

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Date: 30 April 2022 Course: BBCF4073 International Finance

QUESTION 3

a)

Several assumptions underpin the Law of One Price, including free market
competition, the lack of trade barriers, and price flexibility, in which neither buyers nor
sellers may influence commodity prices, implying that prices can be modified at any time.
The one-price rule applies to all goods, securities, and assets. Because of arbitrage
opportunities, the LOOP is often holding. Arbitrage opportunities exist when the prices of
similar things differ across markets because a trader can buy the good at a lower price in
one market and instantly sell it at a higher price in another market for a profit. According
to economic theory, market forces will gradually bring prices across marketplaces closer
together, reducing arbitrage opportunities. In practise, the law of one price does not always
apply. The law will not work if there are transaction fees or trade barriers in the
commodities trade, for example.

b)

By using the concept of relative purchasing power parity, the concept of purchasing
power parity (PPP) has been extended to account for inflation over time (RPPP). The
number of things and services that one dollar may buy is referred to as "purchasing power."
As a result, some of the purchase power of this money has been lost. The RPPP forecasts
that countries with higher inflation will have lower currency values than those with lower
inflation.

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Date: 30 April 2022 Course: BBCF4073 International Finance
c)

Price in Price in Actual

Malaysian Vietnamese Exchange Rate
Ringgit Dong
(MYR) (VND)

1,500 8,000,000 MYR / VND = 5,407.62

i. Fair Price of the laser engravement machine in Vietnam as per the given exchange
rate =Price in Malaysia x Actual exchange rate
=RM 1,500 x 5,407.62
=VND 8,111,430
The price is not equal to VND 8,000,000.

ii. laser engraver machine in Vietnam is UNDERVALUED because it is VND

8,000,000 is lower than VND 8,111,430.

iii. Fair Exchange rate as per PPP

= 800,000/1,500
= 5,333.33 VND per MYR

iv. % Of undervaluation
= 1 – actual price/fair price
= 1 – (8,000,000/ 8,111,430)
= 1- 0.98626259
= 0.01373741 @ 1.37 %

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Date: 30 April 2022 Course: BBCF4073 International Finance

QUESTION 4

a) It is because of the original margin, the trader may be able to maintain the position until
it is closed. However, because they are in the trader's account, the clearing company
does not have access to them. Any damages the trader has suffered must be
recovered. The maintenance margin is the amount of money a trader must have in
their account to continue the transaction. For the most part, only a small portion of the
total is necessary for the first margin. Traders who fall below this amount of equity will
receive a margin call, and their accounts will need to be topped up to the required level
of equity. Treatment has decreased the likelihood of insolvency. If a contract does not
exist, it may be voided, or the money owed unpaid.
b)
i. USD RBD Palm Olein Options (OPOL)
ii. Crude Palm Kernel Oil Futures (FPKO)

c)
i. Cash position of day 1

Purchase price: RM 2,200

Settlement price: RM 2,250

1 FCPO contract = 25mt

Profit: 2 x (RM 2,250 – RM 2,200) x 25 mt

= RM 2,500 profit

Total cash position of the day 1

Margin: RM 9,000 + unrealised profit: RM 2,500 = RM 11,500

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Date: 30 April 2022 Course: BBCF4073 International Finance

ii. Logan realised profit on day 2

Total balance starts of day 2 is RM 11,500

Settlement price day 1 @ RM 2,250

Sold on day 2 @ RM 2,320

Profit/loss = 2 (2,320 – 2,250) x 25 mt

= RM 3,500 (profit)

End of day 2 report:

9,000 (margins) + 2,250 (day 1) + 2,320 (day 2) = RM 13,570

Realised profit:

Day 2 cash position – margin

= 13,570 – 9,000

= RM 4,570

d)
i. Cash position of day 1

Deposit margin = RM 13,500

End of day 1 report:

Purchase price = RM 2,000 per mt

Settlement price = RM 1,970

Profit / loss = 3 x (1,970 – 2,000) x 25 mt = RM 2,250 loss

Total cash position of day 1

Margin: 13,500 - unrealised loss = 2,250

= 13,500 – 2,250 = RM 11,250

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Date: 30 April 2022 Course: BBCF4073 International Finance

ii. Cash balance of day 2

Holding price day 2 @ RM 2,150

Sold on day 3 @ RM 2,040

Profit / loss = 3 x (2,040 – 2,150) x 25 mt

= RM 8,250 Loss

End of day 3 report:

RM 13,500(margin) – 2,250 (loss) - 8250 (loss)

= RM 3,000

Realised loss:

Day 3 cash position – margin

= RM 3,000 – RM 13,500

= (RM10,500)

iii. Calculate Aluna’s profit / (loss) from her futures trading.

Profit from trading = -RM10,500 – RM13,500

= (RM 24,000) Loss

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Date: 30 April 2022 Course: BBCF4073 International Finance

QUESTION 5

a) Explain the following option terminologies:

i. Put option.

Specifies that the option holder has a right but not a duty to sell stock at a
predetermined price by a certain date. Options on put positions can be traded
on a variety of assets, such as equities and currencies.

ii. Strike price.

When a derivative contract is exercised, the price at which it can be bought or

sold is known as the "strike price." If you have a call option, you can buy the
underlying stock at the striking price. If you have a put option, you can sell the
underlying stock at the strike price.

b) Differentiate American style options from European style options

American Style Options European Style Options

• Options can be exercised at any • On the expiration date, option buyers

moment before their expiration date
by the person who owns them.
• Options in the United States have a
higher degree of uncertainty due to
their holder's capacity to exercise the
option at any time.
have the choice to exercise their
options.
• Due to the certainty of the expiration
date and the possibility of calculating
profit or loss, European options carry
a lower risk.

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Date: 30 April 2022 Course: BBCF4073 International Finance

c)
i. Calculate the total cost of your shares.

Number of shares = 100 units

= 100 units x 105 per share

= RM 10,500

ii. Identify the type of option that you should purchase.

As a result of our investment, we are concerned that the value of our stock may
plummet. To avoid this, it is suggested that you purchase a put option. If the share
price falls below RM 105, we will profit from exercising the option and making a profit.
In this way, the loss on the stock purchase is compensated for in a positive sense
Consequently, the put option must be used.

iii. Assume the price of the shares goes up to RM127 per shares:

1. Decide on your option exercise right.

Exercise the market at RM127

2. Calculate the net profit / (loss) from the above investment.

Profit:

Gain = RM 22 x 100 units = RM 2,200

Cost of option = RM (600)

Net profit = RM 1,600

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Date: 30 April 2022 Course: BBCF4073 International Finance

i. Assume the price of the shares goes down to RM97 per shares.

1. Decide on your option exercise right.

Exercise the Option at RM 105.

2. Calculate the net profit / (loss) from the above investment.

Price of the stock goes down to RM 97 / shares

Loss: RM 8 x 100 units = (RM 800)

But we have an insurance = the PUT Option

We can exercise the option at RM 105 / share

Loss of stock = RM 0

Cost of option = (RM600)

Therefore, there is no loss gain.

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