Assignment 1
1.) Explain the logic behind the establishment of the Gold standard. Why did the gold standard finally come to an end?
2.) What is the difference between absolute advantage and comparative advantage when it comes international trade?
3.) Assuming that company A pays a fixed rate of 6.25% and a floating rate of LIBOR + 1%. Company B pays a fixed rate of 7.25% and a floating rate of LIBOR + 1.40%. Based upon comparative advantage, develop a solution for this interest rate swap. Assume that the agreed upon rate is 6.00%.
4.) Please explain the reasoning behind the establishment of the euro. Why has there been so many issues related to the stability of the euro in recent months?
5.) Please explain which entities are more expected to use interest rate swaps and which entities would more likely use currency swaps.
6.) How do swap dealers attempt to hedge their residual risk when engaging in swap transactions?
7.) International corporate governance has become a major issue in financial markets. Please provide a few examples of differences in corporate governance in various countries.
8.) Why would a multinational be willing to issue a bond in a foreign country and what would be the motivation? How can they attempt to minimize their risk is they do issue these bonds?