裢尉将发大号 国际财务管理 微型案例 new outlets in foreign markets 3.Arbitrage within Europe's Exchange Rate Mechanism(ERM) Until 1992,the exchange rates between European currencies were essentially fixed according to the Exchange Rate Mechanism(ERM),as they were allowed to deviate only 2.5 percent from a specified rate.Central banks used intervention in the foreign exchange market to prevent the exchange rates from wandering outside the bands.In 1992,government authorities of European countries widened the band tol5 percent in either direction.This was believed to be a temporary solution to discourage some countries from pulling their currency out of the ERM arrangement,when they believed their currency's proper value with respect to other European currencies was outside the narrow band.Nevertheless,the adjustment in the bands allowed for more fluctuation in each European currency relative to others and is a step backward in the ultimate goal of establishing a single European currency. 1.The bands of European's exchange rate mechanism (ERM)can restrict currency movements.Attempt to create a scenario in which a European firm could engage in arbitrage by investing in other European currencies to achieve high interest earnings,even without covering the position in the forward market.Such a strategy can be feasible when exchange rates are restricted. 2.Refer back to your answer to the previous question.Could U.S.firms benefit from arbitrage in the same manner as European firms?Explain. 3.Before the ERM bands had widened,the spot and forward exchange rates between any two European currencies were almost identical.When the ERM bands were widened,there was a wider gap between the spot and forward exchange rates.Explain why this would occur, using interest rate parity in your explanation. 4.Use of Currency Futures and Options By the Sports Exports Company Last month,Jim Logan completed his undergraduate degree in Finance and decided to pursue his dream of owning his own sporting goods business.......According to Jim market research, he decided to implement his idea on a global basis.Jim planned to expand his product line over time once he established what other sports products might sell to foreign sporting goods stores.He decided to call his business "Sports Exports Company."......The Sports Exports Company receives pounds each month as payment for the footballs that it exports.It anticipates that the pound will depreciate over time against the dollar. 1.How can the Sports Exports Company use currency futures contracts to hedge against exchange rate risk?Are there any limitations of using currency futures contracts that would prevent the Sports Exports Company from locking in a specific exchange rate at which it can sell all the pounds it expects to receive in each of the upcoming months? 2.How can the Sports Exports Company use currency options to hedge against exchange rate risk?Are there any limitations of using currency options contracts that would prevent the Sports Exports Company from locking in a specific exchange rate at which it can sell all the pounds it expects to receive in each of the upcoming months? 3.Jim Logan,owner of the Sports Exports Company,is concerned that the pound may -3.国际财务管理 微型案例 - 3 - new outlets in foreign markets. 3. Arbitrage within Europe’s Exchange Rate Mechanism (ERM) Until 1992, the exchange rates between European currencies were essentially fixed according to the Exchange Rate Mechanism (ERM), as they were allowed to deviate only 2.5 percent from a specified rate. Central banks used intervention in the foreign exchange market to prevent the exchange rates from wandering outside the bands. In 1992, government authorities of European countries widened the band to15 percent in either direction. This was believed to be a temporary solution to discourage some countries from pulling their currency out of the ERM arrangement, when they believed their currency’s proper value with respect to other European currencies was outside the narrow band. Nevertheless, the adjustment in the bands allowed for more fluctuation in each European currency relative to others and is a step backward in the ultimate goal of establishing a single European currency. 1. The bands of European’s exchange rate mechanism (ERM) can restrict currency movements. Attempt to create a scenario in which a European firm could engage in arbitrage by investing in other European currencies to achieve high interest earnings, even without covering the position in the forward market. Such a strategy can be feasible when exchange rates are restricted. 2. Refer back to your answer to the previous question. Could U.S. firms benefit from arbitrage in the same manner as European firms? Explain. 3. Before the ERM bands had widened, the spot and forward exchange rates between any two European currencies were almost identical. When the ERM bands were widened, there was a wider gap between the spot and forward exchange rates. Explain why this would occur, using interest rate parity in your explanation. 4. Use of Currency Futures and Options By the Sports Exports Company Last month, Jim Logan completed his undergraduate degree in Finance and decided to pursue his dream of owning his own sporting goods business. …… According to Jim market research, he decided to implement his idea on a global basis. Jim planned to expand his product line over time once he established what other sports products might sell to foreign sporting goods stores. He decided to call his business “Sports Exports Company.”……The Sports Exports Company receives pounds each month as payment for the footballs that it exports. It anticipates that the pound will depreciate over time against the dollar. 1. How can the Sports Exports Company use currency futures contracts to hedge against exchange rate risk? Are there any limitations of using currency futures contracts that would prevent the Sports Exports Company from locking in a specific exchange rate at which it can sell all the pounds it expects to receive in each of the upcoming months? 2. How can the Sports Exports Company use currency options to hedge against exchange rate risk? Are there any limitations of using currency options contracts that would prevent the Sports Exports Company from locking in a specific exchange rate at which it can sell all the pounds it expects to receive in each of the upcoming months? 3. Jim Logan, owner of the Sports Exports Company, is concerned that the pound may