Reports Of International Financial Management

Running head: INTERNATIONAL FINANCIAL MANAGEMENT
International Financial Management
Name of the Student:
Name of the University:
Authors Note:

INTERNATIONAL FINANCIAL MANAGEMENT
1
Table of Contents
Part A:........................................................................................................................................3
1.a Calculating the new exchange rate EURUSD:.....................................................................3
1.b Calculating the exchange rate GBPEUR:............................................................................3
1.c Explaining the relationship and triangular arbitrage:...........................................................3
2.a Indicating which currency will have the higher rate of inflation in 2017:...........................4
2.b Calculating the change in real value of dollar, where relevant implications of the change:4
2.c Identifying the implications of a change in the real exchange rate of a currency:...............5
2.d Explaining the expect interest rate in the US to be higher than Euro:.................................5
2.e Explaining the why there is no difference in the interest rates of government bonds of any
two countries in the Euro:..........................................................................................................6
Part B:.........................................................................................................................................6
5.a Calculating the Net Pay-out from the purchased call option at the strike price of 67 pence
for the following possible maturity prices 55p, 60p,65p,70p,75p:............................................6
5.b Calculating the Net Pay-out from the purchased put option at the strike price of 67 pence
for the following possible maturity prices 55p, 60p,65p,70p,75p:............................................7
5c. Calculate the total cost of the dollar for the questions:........................................................7
5.d Outlining the advantages and disadvantages of purchasing a call and put for the MNCs
importing from the US:..............................................................................................................8
6.a Explaining why selling futures contract on French bonds would reduce the effect on an
increase in Euro interest rates:...................................................................................................8
6.b Calculating the daily payments and receipts on the future contract given on the bonds:....9
6.c Explaining the market insists on daily settlement:...............................................................9
6.d Explaining how it might work in an interest rate swap:.....................................................10
6.e Calculating the net profit or loss per unit on maturity prices:............................................10

INTERNATIONAL FINANCIAL MANAGEMENT
2
6.f Explaining how the option contract protects against the interest rate rise:........................11
References:...............................................................................................................................12

INTERNATIONAL FINANCIAL MANAGEMENT
3
Part A:
1.a Calculating the new exchange rate EURUSD:
Particular Value
EURUSD 1.10000
USDEUR 1/1.10000
USDEUR 0.90909
New exchange rate 2%
New USDEUR 0.90909 *(1+2%)
New USDEUR 0.92727
New EURUSD 1/0.92727
New EURUSD 1.07843
From the relevant analysis, it has been detected that the new EURUSD is mainly at
the levels of 1.07843.
1.b Calculating the exchange rate GBPEUR:
Particula
r Value
EURUSD 1.1043
GBPUSD 1.2970
GBPEUR 1.2970/1.1043
GBPEUR 1.1745
The GBP/EUR is mainly at the levels of 1.1745 after calculating for the EURUSD to
GBPUSD.
1.c Explaining the relationship and triangular arbitrage:
From the relevant analysis, adequate relationship can be developed for the above
questions, which helps in deriving the values for the currency. Therefore, in the above
question we have used cross currency exchange rate for deriving the values of GBP/EUR