The University of the South Pacific

Faculty of Business and Economics

SCHOOL OF ACCOUNTING & FINANCE
FM303: INTERNATIONAL FINANCE
MAJOR ASSIGNMENT
DUE DATE: 10 MAY, 2020, 11:00 PM (FIJI
STANDARD TIME)

Weight: 35% of coursework

INSTRUCTIONS
Number of Pages 5
Number of Questions 8
Instructions to Candidates  There are FIVE pages including the cover page in
this exam paper, and EIGHT questions.
 Where solutions need to be reported in currencies
or percentages, report your final answer to two
decimal digits.
 Where exchange rates need to be reported as part
of your solution, provide answers to four decimal
digits.
 Answer EIGHT questions. TYPE your answers
and Present your answers neatly.
 In calculation type problems, all necessary
workings should be shown.
 Submit your assignment as a single file, in either
.doc, .docx or .pdf via Moodle using the Major
Assignment Submission Box.
 Late assignments will not be accepted

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 Section A: Calculations [40 marks] [weight = 12.5%]

Question 1 - Topic: Foreign Exchange Market (10 marks)

The exchange rate between Fiji dollar and the New Zealand dollar (FJD/NZD)
rose from 1.3900 (Mar 3, 2020) to 1.3960 (Mar 4, 2020).
a) Calculate the percentage appreciation or depreciation of the New Zealand
dollar [2 marks]
b) Using the result obtained in (a), calculate the percentage appreciation or
depreciation of Fiji dollar. [2 marks]
c) Calculate or quote the corresponding values in terms of NZD/FJD.
[2 marks]
d) Using the results obtained in (c), calculate percentage appreciation or
depreciation of the FJD. [2 marks]
e) Using the results obtained in (d), calculate the percentage appreciation or
depreciation of the New Zealand dollar. [2 marks]

Question 2 - Topic: Exchange Rate Determination (15 marks)

The spot bid-offer rates between Australian dollar and pounds (GBP/AUD) is
quoted as 0.5144 – 0.5149. Speculator A expects the exchange rate to be 0.5130
– 0.5140, whereas Speculator B expects the exchange rate to be 0.5150 –
0.5155, in two months from the initial quotes.

a) Based on the expectations of the two speculators, which currency will

appreciate and which currency will depreciate from the view of
Speculator A, and Speculator B? [3 marks]
b) Determine the appropriate strategy between buy-low-sell-high, and
short-sell positions on the AUD that each Speculator (A and B) should
take given the bid-offer rates at t = 0 and their respective expected rates
t = 2 months, to realize a profit. [4 marks]
c) Based on your answers to part (b), calculate the profit in basis points for
the different positions taken by Speculator A and B, respectively.
[8 marks]

2
Question 3 - Topic: The Balance of Payments and the Effective
Exchange Rates (15 marks)
You are given the following information:
Quantity of imports 300,000 units
Foreign currency price of imports in NZD $20/unit
Exchange Rate (FJD/NZD) 1.3960

Using the given information:

a) Calculate the foreign currency (NZD) value of imports. [2 marks]

b) Calculate the domestic currency (NZD) value of imports [2 marks]
c) Determine the new quantity of imports if the exchange rate falls to
1.3900, and the elasticity of demand is -0.80. [6 marks]
d) Using the results in part (c), determine the new foreign (NZD) and
domestic (FJD) currency value of imports. [5 marks]

Section B: Short Answers [35 marks] [weight = 10%]

Question 4: Define forward contracts and list two problems with forward
contracts. [5 marks]

Question 5: Discuss two factors that affects current account balance and two
factors that affects capital (financial) account balance, clearly indicating the
direction (positive or negative) of the impact. [10 marks]

Question 6: Explain the monetary model of exchange rate, with reference to

PPP and the quantity theory of money. [10 marks]

Question 7: Define currency and interest swap and provide an example of a 3-

period currency and interest swap between two parties. [10 marks]

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 Section C: Research-based essay [25 marks] [weight =12.5%]

Question 8:
Critically analyze the need for and effects of dollar liquidity-swap lines. In
your essay, also address the following questions.
 What are dollar-liquidity swap lines?
 Why is there a need for the dollar liquidity-swap lines?
 Why has Federal Reserve extended the liquidity swap-lines to certain
countries only?
 Can small island economies qualify for this swap? Explain.

Word Limit: ≤ 2000 words.

Ensure to include appropriate citations and complete references. Use APA

style of referencing.

~The END~

RRK/S1/2020/FM303/MAJOR ASSIGNMENT

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 Course: FM303- International Finance
Student Name: …………………………..
Student ID: ……………………………
Essay (25 marks)
Criteria Mark Allocation
10-8 7.5-6 5.5-4 3.5-2 1.5-0
Critical analysis and Systematic and Most key elements are Some key elements Very limited discussion Key elements ignored or
evaluation of topics in thorough discussion of identified and well identified and of key elements. very superficially dealt
the course all key elements. discussed sufficiently discussed. Attempts to use some with.
........../10 marks Highly developed Well-developed critical Some analysis skills basic analysis skills to Evidence of little or no
critical analysis skills analysis skills have have been used to evaluate the topics analysis skills being used
have been used to fully been used to evaluate evaluate the topics covered in the course. to evaluate the topics
evaluate key topics the topics covered in covered in the course. covered in the course.
covered in the course. the course.
15 – 13 10-8 7.5-6 5.5-4 3.5-2 1.5-0
Relating to the course Outstanding application Good links between Good application of Theory and practice Unable to demonstrate
objectives using of theory and theory and practice, and theory, but with loosely and unclearly any significant
examples demonstration of clear key topics, with limited examples or connected. Poorly understanding of finance
........../10 marks links between key evidence clear links with topics structured examples. topic. For example, no
topics using examples and examples to relate to the
explanations/examples explanation. topics
etc.
5 4 3 2 1-0
Communication and Writes fluently and Language is generally Written fluently with Meanings apparent, but Meanings confusing with
referencing clearly uses language fluent and clear; format occasional not clearly and fluently frequent grammatical
PC (3.1) and format appropriate mostly appropriate to grammatical errors; expressed; some errors; format
............/5 marks to the essay genre; high the essay genre; high consistent referencing. referencing errors inappropriate to the
standard and consistent standard and consistent and/or omissions. essay genre; no or
referencing. referencing. inconsistent referencing.

Total: …………../25