CFA CFA level 3 CFA level 3 CFA level 3 CFA level 3 CFA level 3 CFA level 3 finquiz item set questions, study session 7, reading 19

Exactly one month ago, Dependable entered into a 3-month INR/USD forward contract to hedge exposure to the Indian Rupee INR with an underlying notional principal of INR 10 million.. Deta

Trang 1

FinQuiz.com

CFA Level III Item-set - Question

Study Session 9 June 2018

Trang 2

FinQuiz Item-set ID: 19189

Questions 1(19190) through 6(19195) relate to Reading 19

Dependable Associates Case Scenario

Dependable Associates is an investment management firm running its own currency overlay program The firm’s reporting currency is the US dollar (USD) Ivan Waugh is Dependable’s most senior currency analyst who overlooks the overlay program Waugh is analyzing the firm’s existing and proposed currency exposures

Exactly one month ago, Dependable entered into a 3-month INR/USD forward contract to hedge exposure to the Indian Rupee (INR) with an underlying notional principal of INR 10 million However, since then the value of the position has increased Details on spot and forward rates including forward points have been summarized in the Exhibit below

Exhibit:

Spot & Forward Rates & Forward Points for the

INR/USD Forward Contract

Next, Waugh examines an ATM call option position the firm has undertaken on the SGD/USD Waugh feels that the current position is expensive and that the firm will need to modify its

strategy even if this requires sacrificing upside potential The current SGD/USD spot rate is 1.17 and Waugh expects this rate to appreciate over the next six months

Finally, Waugh concludes his analysis by examining two emerging market trades; one of these investments is denominated in Sri Lankan Rupees (LKR) while the other is denominated in the Thai baht (THB)

Waugh believes that real value of the LKR/USD cross rate will not converge to its fair value over the long-run Furthermore, Waugh believes that the volatility of the cross rate is expected to increase over the coming months but is unsure of the direction the exchange rate will take He would like to hedge the firm’s exposure to the LKR while keeping costs to a minimum The current LRK/USD spot rate is 132.996

The other emerging market currency trade is denominated in the Thai baht (THB) and involves the THB/USD cross rate The Thai authorities have imposed capital controls in an effort to promote domestic economic growth Waugh has invested in Thai equities and forecasts the THB

to depreciate as a result of the policy change

Trang 3

FinQuiz Question ID: 19190

1 Dependable’s original position in the INR/USD contract would have involved:

A selling INR 10.0 million spot at an all-in rate of INR/USD 60.10

B selling INR 10.0 million forward at an all-in rate of INR/USD 60.14

C buying INR 12.5 million forward at an all-in rate of INR/USD 58.65

2 To rebalance the hedge Waugh is required to:

A sell INR 2.5 million in the forward market

B purchase INR 2.5 million in the spot market

C purchase INR 2.5 million in the forward market

3 Using the data provided in the Exhibit, at the time of rebalancing the roll yield is most likely:

A zero

B positive

C negative

4 Considering Waugh’s expectations and requirements, which of the following SGD/USD option positions will provide the strongest protection?

A long a 25-delta risk reversal

B long a call option with a strike rate of 1.10

C short put and call options with strike rates of 1.13 and 1.20, respectively; long a call option with a strike rate of 1.17

5 With respect to the LKR/USD investment, Waugh should most likely:

A long a 132.996 call option; long a 132.996 put option

B long a 133.463 call option; long a 132.529 put option

C long a 133.463 call option; short a 132.529 put option

6 Based on the expectation for the THB/USD rate, Waugh should take a:

A long position in a ATM call option

B short position in a 25-delta put option

C long position in a non-deliverable forward (NDF) contract

Định dạng
Số trang	3
Dung lượng	109,1 KB