Explain the differences between investment and risk based financial products
Bill Jones is a public servant and he and Mary have recently married. They have decided that they want to purchase their first home together. They have been referred to a mortgage broker – Getting Started Loans, and speak to Fred Smith there. Fred generally uses the ABC bank for his clients as not only do they offer a good interest rate for clients but Fred also receives and additional $1K on top of his normal fees for each loan he introduces there.
Advise what actions that Fred Smith is required to undertake in providing services to Bill and Mary. Ensure you cover key definitions and activities as part of your response. (600 words)
2. Explain the differences between investment and risk based financial products. Give two examples of each and provide details of when/why they are used. (250-300 words)
onsider a U.S.-based company that imports goods from Switzerland. The U.S. Company expects to make payment on a shipment of goods in six months. Because the payment will be in Swiss francs, the U.S. Company wants to hedge against a negative change in the value of the Swiss franc over the next six months. The U.S. risk-free rate is 2 percent, and the Swiss risk-free rate is 6 percent. Assume that interest rates are expected to remain fixed over the next six months. The current spot rate is USD0.5842/1CHF
a. Indicate whether the U.S. Company should use a long or short forward contract to hedge currency risk.
b. Calculate the no-arbitrage price at which the U.S. Company could enter into a forward contract that expires in six months.