Question

QUESTION 1 Select all that are true given an acceleration of economic growth in the Brazilian economy: Long term investors would invest in the Brazilian economy, but only if the structural aspects of its economy support it Monetary policy, in reaction to the unexpected growth, would decreases the money supply, appreciating the domestic currency The domestic interest rate would increase until new domestic investment and the carry trade mitigate it The domestic currency (Real) would appreciate as foreign investors seek higher returns at lower risk QUESTION 2 Select all that are true regard currency options: The writer of an unexercised currency option collects the option fee without the need to do anything else A call options gives the holder the right, but not the obligation, to buy the currency at the strike price (exchange rate) stipulated in the contract A put option give the right to sell the contract currency at the agreed exchange rate to the writer of the option The writer of a currency option is assuming some of the exchange rate risk

Answer 1

Statements which are tuce regarding comency options: (1) A call options gives the holdes the right, but not the obligation to buy the currency at the stike price (exchange rate) stipulated in the contract Mou explanation . If the stock fails to meet the stuke puce befou the expiration date, the option expires and becomes wathless Investors buy calls when they think the show full of the underlying security will rise on sell a call if they think it will fall. Selling an option is also referred as 'writing Си онем - Put option give the ught to sell the contact cumency at the agreed exchange rate to the miter of the option Mou explanation : write of put option & obligated to buy the stock at the struke peku. (3) The with of an unexe and cumuency option collects the option fee without the need to do anything | snelse. D et

last NOTE & The that statement is wrong in the writy of comency option i assuming some of the exchange rate risk As, cumency optious allows hadus to hedge" cuvenly risk ar to speculate on comenly moves- Currency ophou are one of the most common ways foi corporations to hedge against advuse movements in exchange rates. True statements given an acceleration in ew- nomic growth in the Brazillian economy a (6) long tum investous would invest in the Brazilian economy but only if the structural aspects of its econoney suppout it. 2) Domestic currency (real) would appreciate as fouign investoy seek higher returs at loween 0 uskin [ WRONG STATEMENT]

Explanation : linu, economic growth oncceleration Creates an environment where fouige investors become ready to invest their funds at greater risk for an even low level of return on anueshment

- (3) The domestic interest rate would increase until new domustic investment and the cany trade mitigate it Mou explanation : Due to economic growth acceleration, the deste to invest or inducement to invest will I l thoufou demand for Lunds / credit would rise as a result domestic interest rate would shoot up in chait un. But after a point of time , it will be lowered by trade e other factos internal to economy such as gont policy etc. to stotterdatenga honetary polky, in reaction to unexpected growth would dewass the money supply appreciating the domestic awency Explanation & Since due to unexpected growth the monetary policy may even further increase the money supply as to higgur grow the rather than reducing it for eg with the tin Ms there would be betwood shift in LM cure which will increase the interst late. This will attract

Page mau fouign capital inflows the domestic carency thereby appreciating