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Essay QuestionsTopic 4B

The document consists of various essay and mixed questions related to the foreign exchange market, including calculations for cross rates, forward rates, and the impact of interest rates and inflation on currency values. It also discusses the purchasing power parity hypothesis and reasons for offshore borrowing by Australian companies. Additionally, it includes practical exercises involving spot rates and their implications for currency transactions.

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9 views2 pages

Essay QuestionsTopic 4B

The document consists of various essay and mixed questions related to the foreign exchange market, including calculations for cross rates, forward rates, and the impact of interest rates and inflation on currency values. It also discusses the purchasing power parity hypothesis and reasons for offshore borrowing by Australian companies. Additionally, it includes practical exercises involving spot rates and their implications for currency transactions.

Uploaded by

manhquan.do
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Essay Questions Topic 4B: The Foreign Exchange Market

7. Cross Rate Exercises:


(a) Given the spot rates AUD/USD 0.6755/60 and USD/YEN 83.65/84, calculate the s
pot AUD/YEN rate
(b) Given the spot rates AUD/USD 0.9705/60 and GBP/USD 1.5785/90, calculate the
spot AUD/GBP rate

9. If interest rates in the USA are 5.55% for 90 days and interest rates in Australia 4.95%
for 92 days, calculate the 90 day forward outright rate given a spot rate AUD/USD
of .9755. (Your answer should show your calculations).

10. If interest rates in Australia are higher than those in other countries, would you expect
the Australian dollar to appreciate or depreciate? Explain your answer.

11. Explain the purchasing power parity hypothesis of exchange rate determination. Using
this hypothesis, explain the implication for Australia’s exchange rate if Australia were
to experience higher inflation than its main trading partners.

12. Outline and explain the reasons why an Australian company may borrow funds
offshore rather than domestically.

13. From what you know and looking at the graph below, what has been the behaviour of
the Australian dollar against the United States dollar since 2000? Could you explain
what have been some of the drivers of this behaviour?
Mixed Questions Topic 4

1. Briefly explain the impact of changes in inflation, relative interest rates, relative
national income growth and government intervention on foreign exchange market?

2. What is the relation between Gold market and foreign exchange?

3. One foreign investor wants to buy Australian Treasury bond, assuming all other
variables to be constant what will happen to AUD?

Extra Questions Topic 4

1. (a) If Bank ABC is quoting a spot rate of AUD/USD .9789/94 at what rate will
Corporation XYZ sell spot US dollars?
(b) If Bank ABC is quoting a spot rate of USD/YEN 99.70/80 at what rate will
Corporation XYZ buy spot YEN?
(c) If Bank ABC is quoting a spot rate of USD/YEN 99.70/80 at what rate will
Corporation XYZ sell spot US dollars?
(d) If Bank ABC is quoting a spot rate of AUD/YEN 88.97/07 at what rate will they sell
spot Australian Dollars to Bank DEF?
(e) If Bank ABC is quoting a spot rate of AUD/YEN 88.97/07 at what rate will
Corporation XYZ buy spot Australian Dollars?

2. Cross Rate Exercises:


(a) Given the spot rates USD/EUR 0.7475/85 and USD/GBP 0.6342/65
Calculate the spot GBP/EUR rate
(a) Given the spot rates AUD/USD 0.9705/40 and GBP/USD 1.5760/70
Calculate the spot rate GBP/AUD

3. Quotes:
(a) If Bank ABC is quoting a spot rate of AUD/USD .9777/82 at what rate will they
sell spot Australian dollars to Corporation XYZ?
(b) If Bank ABC is quoting a rate of AUD/USD .9777/82 at what rate will they sell
spot Australian dollars to Bank DEF?

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