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Question 1:
(a) "A tourist resort which does business in a single currency is not exposed to currency risk." Discuss (use example to support your answer).
(b) Case: Hedging foreign currency receivable using futures contract A UK Firm export garments to US on Jan1, 2005. The supplier will pay $100,000 with delivery and payment to take place on 1st Feb 2005. The spot exchange rate (1st Jan) is Pounds 0.5/$.
(i) Assess the currency risk concerns for the UK firm.
The UK firm decides to make use of a futures contract to hedge the company's foreign currency exposure. Assume that a futures contract is listed on the Chicago Mercantile Exchange (CME) for the purchase of $ 100,000 priced in pounds. Also, on 1st Jan 2005, the futures price is Pounds 0.3/$.
Assume also that the spot exchange rate turns out to be Pounds 0.6/$ on 1st Feb 2005.
(ii) Set up a hedge to manage the currency risks using the futures contract.
Question 2:
"Credit-linked notes are important for banks with regards to the management of credit risks. However, there are also other means to mitigate credit risks." Discuss with supported examples.
Advantages of Arbitration (a) First is, Speed : It is a faster scheme of dispute resolution (b) Second is, Convenient : Parties are free for determine as; Th
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