Finance. Vol. 45‚ 157- 174. Alan M. Taylor; Mark P. Taylor‚ (2004)‚ The Purchasing Power Parity debate. The Journal of Economic Perspectives‚ Vol. 18‚ No. 4. (Autumn‚ 2004)‚ pp. 135-158. Andrei Shleifer & Robert W. Vishny‚ (1997)‚ The Limits of Arbitrage. The Journal of Finance. American Finance Association Press. Vol. 52‚ No. 1. (Mar.‚ 1997)‚ pp. 35-55. Bela Balassa‚ (1964)‚ The Purchasing-Power Parity doctrine: a reappraisal. The journal of political economy. The university of Chicago press
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Past midterm problems for FINA 0301 Derivatives Multiple Choice 1. Which from the following list is NOT a kind of derivative? (a) Options (b) Futures (c) Swaps (d) Commodities 2. A derivative can be used for the following purpose except (a) Risk management (b) Speculation (c) Manipulating the market (d) Reducing the transaction cost 3. The value of a forward contract at the time of inception is (a) Zero (b) Positive (c) Negative (d) unknown If you expect that market will be bullish‚
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irrational investment decision. The last assumption is that investors will scramble for any arbitrage chance which means “buy low sell high”. When a piece of information is announced‚ all investors will adjust the expected stock price at the same level and immediately buy the “underpriced” stock or sell the “overpriced stock” to maximize their earnings. Although there are some irrational investors‚ the arbitrage mechanism helps driving out any mispricing caused by any irrational actions. However
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Running Head: Purchasing Power Parity Testing the Evidence of Purchasing Power Parity and Exchange Rates Abstract Investment banks and foreign exchange dealers play important roles in the foreign currency markets. For purchasing power parity to hold in the long run‚ real exchange rates must be stationary. At the heart of the movement of foreign exchange rates is the change in a country’s balance of payments. If purchasing power parity held‚ then the real exchange rate would always equal
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volatility. How would you go about finding the cost of equity using the dividend growth model or the arbitrage pricing theory for your SLP company? Cost of equity using dividend growth model = Estimated dividend of next year/Current Stock price +Growth We will require additional information regarding the: 1) Growth rate of dividends 2) Estimated dividend 3) Stock price Arbitrage pricing theory As per this model the cost of equity is governed by two groups of factors: macro factors
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HML = difference between high and low book-to-market stocks * MOM = returns difference between stocks with high and low past returns * CAPM Fama-French (FF) model: Doesn’t include MOM. Predicts that firm size affects average returns Arbitrage risk: * Execution (or leg) risk: Only
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Price discrimination Price discrimination is the practice of selling the same product at different prices to different customers‚ when there is no difference in the cost to produce the product. Price discrimination is done to maximize profits. This occurs when market prices are set differently to different buyers‚ according to the willingness of each buyer to pay (demand curve) rather than setting a uniform price. It can be seen in the image below how if the seller kept the uniform price of Africa’s
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1. Suppose that you have $1 million and the following two opportunities from which to construct a portfolio: a. Risk-free asset earning 12% per year. b. Risky asset with expected return 30% per year and standard deviation of 40%. If you construct a portfolio with a standard deviation of 30%‚ what is its expected rate of return? Ans: P = 30 = yy y = 0.75 E(rP) = 12 + 0.75(30 12) = 25.5% 2. Suppose that there are many stocks in the security market and that the characteristics of Stocks
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Displayed eloquently in a space that unselfishly portrays a sense of pride and strength sits Judy Chicago’s installation of 39 elaborate place settings on a triangular table. Anyone that walks into the space is immersed in the beautiful place settings illuminated against the black walls that surround it. The ambience provides a bold message urging to reach the viewer. Judy Chicago’s The Dinner Party is the first epic feminist artwork significant in symbolizing the history of women in western
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annum‚ respectively. The six-month forward rate is $1.3478/€. A foreign exchange advisory service has predicted that the euro will appreciate to $1.3790/€ within six months. (a) Using $1‚000‚000 or its equivalent in euros show what would be your arbitrage profit/(loss) per
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