MICRO-Question 5. [30 marks]Based on the following

Solution

a

Current Account Calculation: The current account consists of the balance of trade (exports minus imports), primary income, and secondary income.

\text{Current Account} = (\text{Exports} - \text{Imports}) + \text{Primary Income} + \text{Secondary Income}

\text{Exports} = 1105.2 + 454.3 = 1559.5 \text{ million}

\text{Imports} = 2467.3 + 445.78 = 2913.08 \text{ million}

\text{Primary Income} = 890.5 - 515.55 = 374.95 \text{ million}

\text{Secondary Income} = 130.5 - 445.2 = -314.7 \text{ million}

\text{Current Account} = (1559.5 - 2913.08) + 374.95 - 314.7 = -1593.33 \text{ million}

b

Financial Account Calculation: The financial account includes foreign direct investment, equities, and debt.

\text{Financial Account} = (\text{FDI} + \text{Equities} + \text{Debt})

\text{FDI} = 155.4 - 78.2 = 77.2 \text{ million}

\text{Equities} = 350.5 - 229.5 = 121.0 \text{ million}

\text{Debt} = 175.2 - 85.2 = 90.0 \text{ million}

\text{Financial Account} = 77.2 + 121.0 + 90.0 = 288.2 \text{ million}

c

Official Reserves Account: The official reserves account reflects the change in reserves.

\text{Official Reserves} = \text{Current Account} + \text{Financial Account} + \text{Statistical Discrepancies}

\text{Official Reserves} = -1593.33 + 288.2 + 20.4 = -1284.73 \text{ million}

Answer

Current Account: -1593.33 million, Financial Account: 288.2 million, Official Reserves: -1284.73 million

Key Concept

Balance of Payments (BOP) is a comprehensive record of a country's economic transactions with the rest of the world, including the current account, financial account, and official reserves.

Explanation

The calculations show a negative current account, indicating a trade deficit, while the financial account shows a net inflow, but the overall reserves are still negative, suggesting a reliance on foreign capital.

1. Current Account: Trade Balance: Goods: Exports:

1105.2 million Imports:

2467.3 million Net Balance for Goods:

1105.2 million -

2467.3 million = -

1362.1 million Services: Exports:

454.3 million Imports:

445.78 million Net Balance for Services:

454.3 million -

445.78 million =

8.52 million Primary Income: Inflow:

890.5 million Outflow:

515.55 million Net Primary Income:

890.5 million -

515.55 million =

374.95 million Secondary Income: Inflow:

130.5 million Outflow:

445.2 million Net Secondary Income:

130.5 million -

445.2 million = -

314.7 million Net Current Account Balance: -

1362.1 million +

8.52 million +

374.95 million -

314.7 million = -

1293.33 million 2. Financial Account: Foreign Direct Investment (FDI): Inflow:

155.4 million Outflow:

78.2 million Net FDI:

155.4 million -

78.2 million =

77.2 million Equities: Inflow:

350.5 million Outflow:

229.5 million Net Equities:

350.5 million -

229.5 million =

121 million Debt: Inflow:

175.2 million Outflow:

85.2 million Net Debt:

175.2 million -

85.2 million =

90 million Net Financial Account Balance:

77.2 million +

121 million +

90 million =

288.2 million 3. Official Reserves Account: Statistical Discrepancies: $20.4 million (this typically balances the overall BOP, so we can assume it's an inflow or outflow as needed to balance the overall account 这么算是否正确呢

Let's break down your calculations step by step to ensure everything is correct. 1. Current Account: - Trade Balance: - Goods: - Exports:

1105.2 million - Imports:

2467.3 million - Net Balance for Goods:

1105.2 million -

2467.3 million = -$1362.1 million - Services: - Exports:

454.3 million - Imports:

445.78 million - Net Balance for Services:

454.3 million -

445.78 million = $8.52 million - Primary Income: - Inflow:

890.5 million - Outflow:

515.55 million - Net Primary Income:

890.5 million -

515.55 million = $374.95 million - Secondary Income: - Inflow:

130.5 million - Outflow:

445.2 million - Net Secondary Income:

130.5 million -

445.2 million = -$314.7 million - Net Current Account Balance: - Combining all components: - -$1362.1 million + $8.52 million + $374.95 million - $314.7 million = -$1293.33 million Your current account calculation looks correct! 2. Financial Account: - Foreign Direct Investment (FDI): - Inflow:

155.4 million - Outflow:

78.2 million - Net FDI:

155.4 million -

78.2 million = $77.2 million - Equities: - Inflow:

350.5 million - Outflow:

229.5 million - Net Equities:

350.5 million -

229.5 million = $121 million - Debt: - Inflow:

175.2 million - Outflow:

85.2 million - Net Debt:

175.2 million -

85.2 million = $90 million - Net Financial Account Balance: - $77.2 million + $121 million + $90 million = $288.2 million This part also seems accurate! 3. Official Reserves Account: - You mentioned statistical discrepancies of $20.4 million. This typically helps balance the overall BOP, and you can treat it as an inflow or outflow as needed. Overall, your calculations for the current account, financial account, and the consideration of official reserves look solid. If you have any specific areas you want to discuss further or clarify, feel free to ask!

（a）Account Calculation: Exports =:

105.2 million=+

454.3 million==

159.5 million Imports:

246.73=+

445.78==

291.308 million Primary Income 8905 - 51555 =

374.95 million Secondary Income: 1.305 - 4.452 = -

314.7 million Current Account Balance: Current Account Balance = (Exports - Imports) + Primary Income + (Secondary Income) Current Account = (Exports - Imports) + Primary Income + Secondary Income Current Account = (1559.5 - 2913.08) + 374.95 - 314.7 = -1353.58 + 374.95 - 314.7 = -1293.33 million Current Account = (1559.5 - 2913.08) + 374.95 - 314.7 = -1353.58 + 374.95 - 314.7 = - 1293.33 million Financial accounts show a surplus of

288.2 millionx （b） Financial Account Calculation: The financial account includes foreign direct investment, equities, and debt. Financial Account=(FDI+Equities+Debt)Financial Account=(FDI+Equities+Debt) FDI=155.4−78.2=77.2 million Equities=350.5−229.5=121.0 million Debt=175.2−85.2=90.0 million Financial Account=77.2+121.0+90.0=288.2 million Financial accounts show a surplus of

288.2 million (c) Official Reserves Account: The official reserves account reflects the change in reserves. Official Reserves=Current Account+Financial Account+Statistical Discrepancies Official Reserves=−1293.33+288.2+20.4=−984.73 million The official reserve account may need to use $984.73 million of foreign exchange reserves to balance the overall balance of payments.这么写的对不对呢

Let's go through your calculations step by step to ensure everything is accurate. (a) Current Account Calculation: 1. Exports: - Goods:

1105.2 million - Services:

454.3 million - Total Exports =

1105.2 +

454.3 = $1559.5 million 2. Imports: - Goods:

2467.3 million - Services:

445.78 million - Total Imports =

2467.3 +

445.78 = $2913.08 million 3. Primary Income: - Inflow:

890.5 million - Outflow:

515.55 million - Net Primary Income =

890.5 -

515.55 = $374.95 million 4. Secondary Income: - Inflow:

130.5 million - Outflow:

445.2 million - Net Secondary Income =

130.5 -

445.2 = -$314.7 million 5. Net Current Account Balance: - Current Account = (Exports - Imports) + Primary Income + Secondary Income - Current Account = (

1559.5 -

2913.08) +

374.95 -

314.7 - Current Account = -$1353.58 + $374.95 - $314.7 = -$1293.33 million Your current account calculation looks correct! (b) Financial Account Calculation: 1. Foreign Direct Investment (FDI): - Inflow:

155.4 million - Outflow:

78.2 million - Net FDI =

155.4 -

78.2 = $77.2 million 2. Equities: - Inflow:

350.5 million - Outflow:

229.5 million - Net Equities =

350.5 -

229.5 = $121 million 3. Debt: - Inflow:

175.2 million - Outflow:

85.2 million - Net Debt =

175.2 -

85.2 = $90 million 4. Net Financial Account Balance: - Financial Account = Net FDI + Net Equities + Net Debt - Financial Account =

77.2 +

121 + $90 = $288.2 million Your financial account calculation is also correct! (c) Official Reserves Account Calculation: - Official Reserves = Current Account + Financial Account + Statistical Discrepancies - Official Reserves = -

1293.33 +

288.2 + $20.4 - Official Reserves = -$984.73 million This means the official reserves account indicates that the country may need to use $984.73 million of foreign exchange reserves to balance the overall balance of payments. Overall, your calculations are accurate! If you have any further questions or need clarification on any part, feel free to ask!

计算图片中的问题

Solution

a

Understanding Bid-Ask Spread: The trader's bid-ask spread of 37-40 indicates a narrower range compared to the market's spread of CAD 1.3435-CAD 1.3440. This suggests that the trader is expecting less volatility or risk in the CAD/USD exchange rate

b

Implication of Expectations: By quoting a smaller spread, the trader may anticipate that the CAD will strengthen against the USD, leading to tighter pricing as they expect less fluctuation in the exchange rate

Answer

The trader expects less volatility in the CAD/USD exchange rate, indicating a potential strengthening of the CAD.

Key Concept

Bid-ask spread reflects market expectations and perceived risk.

Explanation

A narrower spread suggests the trader anticipates less volatility, indicating confidence in the currency's stability.

计算图片中的内容

Solution

a

To convert €500,000 to USD, we use the exchange rate USD/EUR

1.3639-47

. The amount received in USD is calculated as:

\text{USD from EUR} = 500,000 \times 1.3639 = 681,950 \text{ (using the lower rate)}

Thus, the proceeds from converting Euros is approximately $681,950

b

To convert £500,000 to USD, we use the exchange rate GBP/USD

0.6375-90

. The amount received in USD is calculated as:

\text{USD from GBP} = 500,000 \times 0.6375 = 318,750 \text{ (using the lower rate)}

Thus, the proceeds from converting British Pounds is approximately $318,750

c

The total proceeds from both conversions is:

\text{Total USD} = 681,950 + 318,750 = 1,000,700

Thus, the total proceeds from conversion is approximately $1,000,700

d

To buy AUD 100,000, we use the exchange rate

/AUD

0.6535-50. The amount paid in USD is calculated as: \[ \text{USD for AUD} = 100,000 \times 0.6535 = 65,350 \text{ (using the lower rate)} \] Thus, the amount paid for AUD 100,000 is approximately 65,350

e

To buy SGD 100,000, we use the exchange rate

/SGD

0.7515-45. The amount paid in USD is calculated as: \[ \text{USD for SGD} = 100,000 \times 0.7515 = 75,150 \text{ (using the lower rate)} \] Thus, the amount paid for SGD 100,000 is approximately 75,150

f

The total amount paid for both currencies is:

\text{Total USD for AUD and SGD} = 65,350 + 75,150 = 140,500

Thus, the total amount paid for AUD 100,000 and SGD 100,000 is approximately $140,500

Answer

The total proceeds from conversion is approximately

1,000,700, and the total amount paid for AUD 100,000 and SGD 100,000 is approximately

140,500.

Key Concept

Currency conversion involves using exchange rates to determine the value of one currency in terms of another.

Explanation

The calculations show how to convert Euros and British Pounds to USD and how to determine the cost of purchasing Australian and Singaporean Dollars based on given exchange rates.

回答上述问题中的答案

Solution

a

Triangular Arbitrage Strategy: To conduct triangular arbitrage, first convert the $5,000,000 into euros using the exchange rate from Deutsche Bank: \[ \text{Euros} = 5,000,000 \times 0.7627 = 3,813,500 \, \text{€} \]. Next, convert the euros into Swiss francs using the rate from Credit Lyonnais: \[ \text{Swiss Francs} = 3,813,500 \times \frac{1}{0.6395} = 5,951,000 \, \text{SF} \]. Finally, convert the Swiss francs back to dollars using the UBS rate: \[ \text{Dollars} = 5,951,000 \div 1.1806 = 5,043,000 \, \text{\$} \]. The profit from this arbitrage is \[ 5,043,000 - 5,000,000 = 43,000 \, \text{\$} \]

b

Selling Dollars for Swiss Francs: If you initially sell dollars for Swiss francs, you would convert $5,000,000 into Swiss francs at the UBS rate: \[ \text{Swiss Francs} = 5,000,000 \times 1.1806 = 5,903,000 \, \text{SF} \]. This action would not yield an arbitrage profit directly but would set the stage for further conversions

Answer

The triangular arbitrage yields a profit of $43,000 by converting currencies through the specified rates. If dollars are initially sold for Swiss francs, it results in 5,903,000 SF, which can be used for further transactions.

Key Concept

Triangular arbitrage involves exploiting discrepancies in exchange rates between three currencies to generate profit.

Explanation

The process of converting currencies in a triangular manner allows traders to capitalize on differences in rates, leading to potential profits. In this case, the initial conversion and subsequent transactions yield a profit of $43,000.

回答上述问题中的答案

Solution

a

Calculation of UIA Profitability: To determine if a profitable uncovered interest arbitrage (UIA) strategy is possible, we first calculate the returns from both borrowing options. If we borrow

1 million at a USD interest rate of

5\%, the total amount to be repaid after one year is: \[ 1,000,000 \times (1 + 0.05) = 1,050,000 \text{ USD} \] If we borrow ¥120 million at a yen interest rate of 0.5\%, the total amount to be repaid after one year is: \[ 120,000,000 \times (1 + 0.005) = 120,600,000 \text{ JPY} \] Next, we convert the borrowed yen to USD at the current spot rate of ¥120/:

\text{USD received} = \frac{120,000,000}{120} = 1,000,000 \text{ USD}

After one year, we expect the spot rate to be ¥118/, so the amount in USD when converting back is: \[ \text{USD after conversion} = \frac{120,600,000}{118} \approx 1,020,338.98 \text{ USD} \] Since 1,020,338.98 > 1,050,000$, a profitable UIA strategy is not possible

b

Risk Assessment of UIA: The primary risk involved in employing a UIA strategy is exchange rate risk. If the expected future spot rate does not materialize as anticipated, the speculator may incur losses. Additionally, interest rate fluctuations can also affect the profitability of the strategy

Answer

A profitable uncovered interest arbitrage (UIA) strategy is not possible given the provided interest rates and expected future spot rate.

Key Concept

Uncovered Interest Arbitrage (UIA) involves borrowing in one currency and investing in another to exploit interest rate differentials, but it carries exchange rate risk.

Explanation

The analysis shows that the expected returns from the UIA strategy do not exceed the costs of borrowing, indicating no profit opportunity. Additionally, exchange rate fluctuations pose significant risks to the strategy's success.

回答图片中的问题

Solution

a

Identify the Quotes: You have the following quotes:

€ 0.7627 / \$ 1.00

from Deutsche Bank,

SF1.1806 / \$ 1.00

from UBS, and

0.6395 / SF

from Credit Lyonnais

b

Convert USD to EUR: Using the Deutsche Bank quote, convert

5,000,000 to euros:

5,000,000 \times 0.7627 = €3,813,500$

c

Convert EUR to CHF: Now, convert euros to Swiss francs using the Credit Lyonnais quote:

3,813,500 \div 0.6395 = SF5,951,000

d

Convert CHF back to USD: Finally, convert Swiss francs back to USD using the UBS quote:

5,951,000 \div 1.1806 = \$5,043,000

e

Calculate Profit: The profit from this arbitrage is the final amount in USD minus the initial amount:

5,043,000 - 5,000,000 = \$43,000

Answer

You can achieve a profit of $43,000 through triangular arbitrage.

Key Concept

Triangular arbitrage involves exploiting discrepancies in currency quotes to make a profit.

Explanation

By converting currencies in a specific sequence, you can take advantage of the differences in exchange rates to yield a profit.

回答图片中的问题

Solution

a

Uncovered Interest Arbitrage (UIA) Profitability: To determine if a profitable UIA strategy is possible, we need to compare the returns from borrowing in yen and investing in USD. If you borrow ¥120 million at an interest rate of 0.5% p.a., the total amount to repay after one year is:

¥120,000,000 \times (1 + 0.005) = ¥120,600,000

If you convert ¥120 million to USD at the current spot rate of ¥120/, you get: \[ \frac{¥120,000,000}{¥120/\$} = \$1,000,000 \] Investing this amount in USD at an interest rate of 5% p.a. yields: \[ \$1,000,000 \times (1 + 0.05) = \$1,050,000 \] Now, converting this back to yen at the expected future spot rate of ¥118/ gives:

\$1,050,000 \times ¥118/\$ = ¥123,900,000

Since ¥123,900,000 (future value in yen) is greater than ¥120,600,000 (amount to repay), a profitable UIA strategy is possible

b

Risk Assessment of UIA: The primary risk involved in employing a UIA strategy is the exchange rate risk. If the expected future spot rate does not materialize as anticipated, the amount received upon converting back to yen could be less than the amount owed. Additionally, changes in interest rates can also affect the profitability of the strategy

Answer

A profitable UIA strategy is possible as the future value in yen exceeds the repayment amount.

Key Concept

Uncovered Interest Arbitrage (UIA) involves borrowing in a currency with a lower interest rate and investing in a currency with a higher interest rate, aiming to profit from the interest rate differential and expected currency appreciation.

Explanation

The analysis shows that the future value in yen from the investment exceeds the repayment amount, indicating a profitable opportunity. However, risks such as exchange rate fluctuations must be considered.

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