Statements about forward exchange rates

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Reference no: EM131619417

1. Which of the following statements about forward exchange rates is false?

They reduce uncertainty about the future value of currencies.

They reflect expectations about the future value of currencies.

They are usually slightly lower than the spot rate.

All of these options are true.

2. You are being asked to value risk to determine the maximum 1 day loss due to changes in exchange rates on 1,000,000 euros using the following information. a. The current spot change rate of the Euro = $1.30 b. The mean 1 day change in exchange rate = 0% c. The variance of the 1 day change = .0000025 d. The standard dev of the 1 day change = .005 e. What is the maximum 1 day loss at a 97.5% confidence interval(use a factor of 1.96 to represent confidence interval)

i. $9,800

ii. $6,500

iii. $64

iv. $25

Reference no: EM131619417

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