INTERNATIONAL FINANCE

Homework Topic 3
International Financial Markets
Please focus on the red questions.
Part I: Foreign exchange market
1. Bank Services List some of the important characteristics of bank foreign
exchange services that MNCs should consider.
2. Bid/Ask Spread Utah Bank’s bid price for Canadian dollars is $0.7938 and its
ask price is $0.8100. What is the bid/ask percentage spread? 0,02
3. Bid/Ask Spread Compute the bid/ask percentage spread for Mexican peso
retail transactions in which the ask rate is $0.11 and the bid rate is $0.10. (0,09090)
4. Indirect Exchange Rate If the direct exchange rate of the euro is $1.25, what
is the euro’s indirect exchange rate? That is, what is the value of a dollar in euros?
1/1.25=0.8
5. Cross Exchange Rate Assume Poland’s currency (the zloty) is worth $0.17
and the Japanese yen is worth $0.008. What is the cross-exchange rate of the zloty with
respect to yen? That is, how many yen equal one zloty?
Value of zloty = $0.17
Value of yen = $0.008
Value of zloty in yen = 0.17/0.008
Value of yen in zloty = 0.008/0.17=4/55=0.047
6. Exchange rate Suppose that the Brazilian real devalues (giảm) by 25% against
the U.S. dollar. By how much will the dollar appreciate against the real?
Suppose 1 real = 1 USD
=> 1*(1-25%)=0,75 => 1 real = 0,75 USD
1USD = 4/3 real
(4/3 - 1)/1 = (33%) tăng
 7. Exchange rate Last month, EUR was worth JPY 122.176. Today, EUR is
worth 119.084 JPY. Calculate JPY depreciation/appreciation against EUR?
Last month: 1EUR = 122.176 JPY -> 1 JPY = 1/122.176 EUR
Today: 1EUR = 119.084 JPY -> 1JPY = 1/119.084 EUR (lớn hơn)
1/119.084−1 /122.176
Appreciation = 1/122.176
*100 = 2.6%

8. Foreign Exchange You just came back from Canada, where the Canadian
dollar was worth $0.70. You still have C$200 from your trip and could exchange them
for dollars at the airport, but the airport foreign exchange desk will only buy them for
$0.60. Next week, you will be going to Mexico and will need pesos. The airport foreign
exchange desk will sell you pesos for $0.10 per peso. You met a tourist at the airport
who is from Mexico and is on his way to Canada. He is willing to buy your C$200 for
1,300 pesos. Should you accept the offer or cash the Canadian dollars in at the airport?
Explain.
9. Interpreting Exchange Rate Quotations
Today you notice the following exchange rate quotations: (a) $1 = 3.00 Argentine
pesos and (b) 1 Argentine peso = 0.50 Canadian dollar. You need to purchase 100,000
Canadian dollars with U.S. dollars. How many U.S. dollars will you need for your
purchase?
1$ = 3 peso -> 1 peso = $ 1/3
1 peso = 0.5 $C => $1/3 = 0.5 $C => $C 1 = $2/3
$C 100 = 66.6(7) $
10. Direct versus Indirect Exchange Rates
Assume that during this semester, the euro appreciated against the dollar. Did the
direct exchange rate of the euro increase or decrease? Did the indirect exchange rate of
the euro increase or decrease?
11. Bid/ask spread
We have been given a quote of GBP/USD 1.9717 - 1.9720. Please determine the
exchange rate of USD/GBP.
1/1.9717 - 1/1.9729
We have been given a quote of EUR/USD 1.4740 - 1.4745. Please determine the
exchange rate of USD/EUR.
12. Bid/ask spread Briefly explain factors that affect bid/ask spread.
13. Cross exchange rate
Bid Ask
 GBP/USD 1.9712 1.9717

EUR/USD 1.4738 1.4742

a. Using the table above, what is the bid price of pounds in terms of euro?
GBP/EUR bid = 1.9712/1.4738 = 1.3375
b. Using the table above, what is the ask price of pounds in terms of euro?
GBP/EUR = 1.9717/1.4742 = 1.34
c. Using the table above, what is the bid price of euro in terms of pounds?
Euro/GBP = 1.4738/1.9712
d. Using the table above, what is the ask price of euro in terms of pounds?
1.4742/1.9717
Part II: International money market, credit market, bond market, and stock
market
14. International Markets What is the function of international money markets?
Briefly describe the reasons for the development and growth of the European money
market. Explain how the international money, credit, and bond markets differ from one
another.
15. What is the risk of International Money Market Securities?
16. Syndicated Loans Explain how syndicated loans are used in international
markets.
17. Eurocredit Loans
a. With regard to Eurocredit loans, who are the borrowers?
b. Why would a bank desire to participate in syndicated Eurocredit loans?
c. What is LIBOR, and how is it used in the Eurocredit market?
18. International bond market Please describe the features of Eurobonds.
19. International bond market If you are an investor buying bonds in the
international market, what kinds of risks do you have to face?
20. Foreign Stock Markets Explain why firms may issue stock in foreign
markets. Why might U.S. firms have issued more stock in Europe after the inception of
the euro?
21. What is Yankee stock offerings?
22. Transparency and Stock Trading Activity
Explain the relationship between transparency of firms and investor participation
(or trading activity) in stock markets. Based on this relationship, how can governments
of countries increase the amount of trading activity (and therefore liquidity) of their
stock markets?
23. How Governance Affects Stock Market Liquidity Identify some of the key
factors that can allow for stronger governance, thereby increasing participation and
trading activity in a stock market.