金融机构管理习题答案015

175ChapterFifteenForeignExchangeRiskChapterOutlineIntroductionSourcesofForeignExchangeRiskExposureForeignExchangeRateVolatilityandFXExposureForeignCurrencyTradingFXTradingActivitiesTheProfitabilityofForeignCurrencyTradingForeignAssetandLiabilityPositionsTheReturnandRiskofForeignInvestmentsRiskandHedgingInterestRateParityTheoremMulticurrencyForeignAsset-LiabilityPositionsSummary176SolutionsforEnd-of-ChapterQuestionsandProblems:ChapterFifteen1.WhatarethefourFXrisksfacedbyFIs?Thefourrisksinclude(1)tradinginforeignsecurities,(2)makingforeigncurrencyloans,(3)issuingforeigncurrency-denominateddebt,and(4)buyingforeigncurrency-issuedsecurities.2.WhatisthespotmarketforFX?WhatistheforwardmarketforFX?Whatisthepositionofbeingnetlonginacurrency?Thespotmarketforforeignexchangeinvolvestransactionsforimmediatedeliveryofacurrency,whiletheforwardmarketinvolvesagreementstodeliveracurrencyatalatertimeforapriceorexchangeratethatisdeterminedatthetimetheagreementisreached.Thenetexposureofaforeigncurrencyisthenetforeignassetpositionplusthenetforeigncurrencyposition.Netlonginacurrencymeansthattheamountofforeignassetsexceedstheamountofforeignliabilities.3.X-IMBankhas¥14millioninassetsand¥23millioninliabilitiesandhassold¥8millioninforeigncurrencytrading.WhatisthenetexposureforX-IM?Forwhattypeofexchangeratemovementdoesthisexposureputthebankatrisk?Thenetexposurewouldbe¥14million–¥23million–¥8million=-¥17million.Thisnegativeexposureputsthebankatriskofanappreciationoftheyenagainstthedollar.Astrongeryenmeansthatrepaymentofthenetpositionwouldrequiremoredollars.4.WhattwofactorsdirectlyaffecttheprofitabilityofanFI’spositioninaforeigncurrency?Theprofitabilityisafunctionofthesizeofthenetexposureandthevolatilityoftheforeignexchangeratioorrelationship.5.ThefollowingaretheforeigncurrencypositionsofanFI,expressedindollars.CurrencyAssetsLiabilitiesFXBoughtFXSoldSwissfranc(SF)$125,000$50,000$10,000$15,000Britishpound(£)50,00022,00015,00020,000Japaneseyen(¥)75,00030,00012,00088,000a.WhatistheFI’snetexposureinSwissfrancs?NetexposureinSwissfrancs=$70,000.b.WhatistheFI’snetexposureinBritishpounds?NetexposureinBritishpounds=$23,000.c.WhatistheFI’snetexposureinJapaneseyen?177NetexposureinJapaneseyen=-$31,000d.WhatistheexpectedlossorgainiftheSFexchangerateappreciatesby1percent?Ifassetsaregreaterthanliabilities,thenanappreciationoftheforeignexchangerateswillgenerateagain=$70,000x0.01=$7,000.e.Whatistheexpectedlossorgainifthe£exchangerateappreciatesby1percent?Gain=$23,000x0.01=$230f.Whatistheexpectedlossorgainifthe¥exchangerateappreciatesby2percent?Loss=-$31,000x0.02=-$6,2006.WhatarethefourFXtradingactivitiesundertakenbyFIs?HowdoFIsprofitfromtheseactivities?WhatarethereasonsfortheslowgrowthinFXprofitsatmajorU.S.banks?ThefourareasofFXactivityundertakenbyFIsareeitherfortheircustomer’saccountsorfortheirownproprietarytradingaccounts.TheyinvolvethepurchaseandsaleofFXinorderto(a)completeinternationalcommercialtransactions,(b)investabroadindirectorportfolioinvestments,(c)hedgeoutstandingcurrencyexposures,and(d)speculateagainstmovementsincurrencies.Mostbanksearncommissionsontransactionsmadeonbehalfoftheircustomers.Ifthebanksaremarketmakersincurrencies,theymaketheirprofitsonthebid-askspread.AmajorreasonfortheslowgrowthinprofitshasbeenthedeclineinvolatilityofFXratesamongmajorEuropeancurrenciesthathasmorethanoffsettheincreasedvolatilityofFXratesamongAsiancurrencies.ThereducedvolatilityisrelatedtothereductionininflationratesintheEuropeancountriesandtherelativelyfixedexchangeratesthathaveprevailedastheEuropeancountriesmovetowardfullmonetaryunion.7.CityBankissued$200millionofone-yearCDsintheU.S.atarateof6.50percent.Itinvestedpartofthismoney,$100million,inthepurchaseofaone-yearbondissuedbyaU.S.firmatanannualrateof7percent.Theremaining$100millionwasinvestedinaone-yearBraziliangovernmentbondpayinganannualinterestrateof8percent.TheexchangerateatthetimeofthetransactionwasBrazilianreal1/$.a.Whatwillbethenetreturnonthis$200millioninvestmentinbondsiftheexchangeratebetweentheBrazilianrealandtheU.S.dollarremainsthesame?Costoffunds=0.065x$200million=$13millionReturnonU.S.loan=0.07x$100million=$7,000,000ReturnonBrazilianbond=(.08xReal100m)/1.00=$8,000,000Totalinterestearned=$15,000,000178Netreturnoninvestment=$15million-$13million/$200million=1.00percent.b.Whatwillbethenetreturnonthis$200millioninvestmentiftheexchangeratechangestoreal1.20/$?Costoffunds=0.065x$200million=$13,000,000ReturnonU.S.loan=0.07x$100million=$7,000,000ReturnonBrazilianbond=(0.08xReal100m)/1.20=$6,666,667Totalinterestearned=$13,666,667Netreturnoninvestment=$13,666,667-$13,000,000/$200,000,000=0.67percent.ConsiderationshouldbegiventothefactthattheBrazilianbondwasforReal100million.Thus,atmaturitythebondwillbepaidbackforReal100million/1.20=$83,333,333.33.Therefore,thestrengtheningdollarwillhavecausedalossincapital($16,666,666.67)thatfarexceedstheinterestearnedontheBrazilianbond.c.Whatwillbethenetreturnonthis$200millioninvestmentiftheexchangeratechangestoreal0.80/$?Costoffunds=0.065x$200million=$13,000,000Ret