· From the e-Activity, provide a defense for why the company that you chose is or is not a good investment based only on its financial statements. Provide support for your rationale.
· Eactivity -Go to the financial statement page of Yahoo! Finance’s Website, located at http://biz.yahoo.com/reports/financials.html, and select a company that interests you. Review the selected company’s financial statements. Be prepared to discuss.
· Take a position on whether or not a financial statement analysis is an important tool to use when selecting investments. Support your position with two examples.
· From the first e-Activity, speculate one specific area in which the next Triennial report may show a significant change. Explain how you arrived at your conclusion.
· Eactivity- Go to the Bank for International Settlements Website to read the results summarized in the article titled “Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in April 2010 – Preliminary Global Results – Turnover”, dated September 2010, located at http://www.bis.org/publ/rpfx10.htm. Be prepared to discuss.
· Research the Internet or the Library for recent articles (within the last 12 months) that criticizes the activities or performance of commercial banks. Be prepared to discuss.
· Considering the U.S. Federal Reserve Board announced that U.S. interest rates will stay low through mid-2014, analyze how this will affect the foreign exchange derivatives market. Suggest whether or not you agree with this strategy. Provide support for your rationale.
“Commercial Bank Operations” Please respond to the following:
· Assess the obligation commercial banks have in building consumer confidence and rate how the banks are doing in this regard. Support your response with evidence or an example.
· From the second e-Activity, summary the author’s or authors’ criticism of commercial banks. Provide a counter argument to the criticism using examples or evidence to support your response.
EActivity Research the Internet for recent articles (within the last 12 months) that criticizes the activities or performance of commercial banks. Be prepared to discuss.
QUESTIONS AND APPLICATIONS
1. Exchange Rate Systems Explain the exchange rate system that existed during the 1950s and 1960s. How did the Smithsonian Agreement in 1971 revise it? How does today’s exchange rate system differ?
2. 6. Impact of Economic Conditions Assume that Switzerland has a very strong economy, putting upward pressure on both inflation and interest rates. Explain how these conditions could put pressure on the value of the Swiss franc, and determine whether the franc’s value will rise or fall.
3. 1. Currency Futures Use the following information to determine the probability distribution of per unit gains from selling Mexican peso futures.
4. ■ Spot rate of the peso is $0.10. ■ Price of peso futures is $0.102 per unit. ■ Your expectation of the peso spot rate at maturity
5. of the futures contract is:
Possibe Outcome for Future Spot Rate Probability
2. Currency Call Options Use the following information to determine the probability distribution of net gains per unit from purchasing a call option on British pounds.
■ Spot rate of the British pound is $1.45. ■ Premium on the British pound option is $0.04
per unit. ■ Exercise price of a British pound option is $1.46. ■ Your expectation of the British pound spot rate
prior to the expiration of the option is:
Possible outcome for Future Spot Rate Probability
4. Covered Interest Arbitrage Assume the following information:
■ ■ ■ ■
British pound spot rate = $1.58 British pound one-year forward rate = $1.58 British one-year interest rate = 11 percent U.S. one-year interest rate = 9 percent
Explain how U.S. investors could use covered interest arbitrage to lock in a higher yield than 9 percent. What would be their yield? Explain how the spot and forward rates of the pound would change as covered interest arbitrage occurs.
1. Bank Balance Sheet Create a balance sheet for a typical bank, showing its main liabilities (sources of funds) and assets (uses of funds).
2. 2. Bank Sources of Funds What are four major sources of funds for banks? What alternatives does a bank have if it needs temporary funds? What is the most common reason that banks issue bonds?
3. 7. Borrowing from the Federal Reserve Describe the process of “borrowing at the Federal Reserve.” What rate is charged, and who sets it? Why do banks commonly borrow in the federal funds market rather than through the Federal Reserve?
4. 11. Bank Capital Explain the dilemma faced by banks when determining the optimal amount of capital to hold. A bank’s capital is less than 10 percent of its assets. How do you think this percentage would com- pare to that of manufacturing corporations? How would you explain this difference?
5. 13. Credit Crisis Explain how some mortgage opera- tions by some commercial banks (along with other financial institutions) played a major role in instigating the credit crisis.