QUESTIONS 25 THROUGH 30 RELATE TO RISK MANAGEMENT APPLICATION OF DERIV...

1. - VOLUME II BEHAVIORAL FINANCE INDIVIDUAL INVESTORS AND INSTITUTIONAL INVESTORSCFA LEVEL 3CFA FINQUIZ LEVEL3MOCK2018VERSION2JUNEPMQUESTIONS
VOLUME II BEHAVIORAL FINANCE INDIVIDUAL INVESTORS AND INSTITUTIONAL INVESTORSCFA LEVEL 3CFA FINQUIZ LEVEL3MOCK2018VERSION2JUNEPMQUESTIONS
1. Dallas Inc. is a multinational manufacturer of home flooring. To finance its Japanese operations it has issued a three-year dual currency bond with a face value of ¥450 million or $5.625 million with a coupon rate of 5.0%. To exploit arbitrage opportunities, Jose has purchased a US$ denominated bond issued by a U.S. manufacturer with a coupon rate of 5.25% and a face value of $5.625 million. It has also engaged in a currency swap with yen and US$ swap rates of 5.0% and 4.5%, respectively and notional principals of ¥450 million and US$5.625 million. The current exchange rate is ¥80/US$.