1. What does the quote USD-AUD = 1.2301/47 mean? Explain in words understood by a novice.

2. In which country will this be considered a direct quote? 3. How many USD will you get if you wanted to exchange 10,000 AUD at Bank of

America at the spot rate quoted above? 4. If a US based importing company pays for all its imports from Australia in AUD, should

it be concerned about AUD appreciating or depreciating? Explain. 5. If a US based exporter is expecting to receive 1,500,000 AUD in three months, would

you recommend that the exporter sign a forward contract? Why or why not? 6. If the exporter signs a forward contract and the spot rate in 90 days is exactly what was

forecast, what will be their profit/loss from this strategy?

7. List and explain in your own words, the reasons given in the F. Mayer case for EUR depreciation.

Answer questions 8-10 based on the following information?: In exhibit 3 of the F. Mayer case, the following option quotes have been provided to Mr. Goode: “…. All pricing is based off spot AUD/EUR 0.6980, …four-month forward 0.6910.”

a. Purchase an AUD Put/EUR Call Option b. Expiry Date: 2015-01-14 c. Strike 1: 0.6910 (at-the-money forward) d. Strike 2: 0.6860 (50 pips OTM) e. Premium 1: 2.13% of AUD face value

f. Premium 2: 1.81% of AUD face value

8. Provide your interpretation for each of the statements in lines ‘a-f’ above. 9. Why is the ‘premium 2’ higher than ‘premium 1’? 10. If Mr. Goode decides to Purchase EUR call at ‘Strike 2’, and exercise the option to pay

30 million EUR for its imports on 1/14/2015, how many AUD will that cost Mr. Goode?

Use the concepts of capital budgeting that you learnt in FIN 301, FIN 309, and in your analysis of the Hola-Kola case to ?answer questions 11-15 based on the scenario below?:

Anna and Sam are currently renting, and are evaluating whether to buy, or build their own home. They have spent countless hours seeing homes, discussing possibilities with plan designers, interior designers, and builders. They have paid $10,000 as deposit for the plot of land where they may build, $15,000 to the plan designer, and $20,000 to the interior designer. The builder has just told them that the cost of land and construction to build the home with the plans they have just presented him, will cost them $1,350,000. They have seen another home which is similar but slightly smaller than their plans, in a similar neighborhood, that costs $900,000, because it is three years old.

? They will make a 20% down-payment, and borrow the rest through a 7/1 mortgage at 3.85% amortized over 30 years.

? They will take out the required down-payment from their investments in mutual fund which has been earning 7.8% and is expected to continue to yield similar returns

? Home prices in that area are expected to go up by 4% for homes less than $1M, and 1% for homes over $1M for the next seven years

? Anna and Sam know that most people move out of their first home in seven years, so they want to make their decision based on that assumption.

? HOA on homes is $140 per month, annual insurance cost will be 0.3% of property value, and annual taxes are 1% of property value.

? Since Anna and Sam plan to sell through Redfin when they do sell in seven years, they think their total costs to sell will be approximately 3.75% of the sale price.

11. Which costs should be considered as sunk costs when evaluating the two alternatives? 12. What will be the monthly cash outflow for the built-up house? 13. What will be monthly cash outflow for the house if custom built by Anna and Sam?

14. What should be the additional opportunity costs (if any) considered in either case? 15. Assume that any difference in cash flows will be invested in the mutual fund mentioned

above. Ignoring any tax benefit on mortgage interest deduction, and/or any difference in maintenance costs, which of the two alternatives is a better choice and by how much?