原版书课后题是说company credit rating与narrow spread没有关系

问题如下：

Nexran Enterprises Case Scenario

Barkley Carlisle was recently hired as an associate analyst in the corporate finance department by Nexran Enterprises. Nexran is a US manufacturer of heavy industrial equipment that sells its products globally. Carlisle assists finance director Jennifer Brannigan in managing Nexran’s foreign currency risk. As part of the training process concerning the complexities of the foreign exchange (FX) markets, Brannigan provides Carlisle with Exhibit 1 and asks him to demonstrate his familiarity with some calculations, such as triangular arbitrage and expected future spot rates. A few days later, Brannigan and Carlisle meet to discuss the results of his work.

Exhibit 1

Interbank Currency Quotes and Market Reference Rates (MRR)

After reviewing the calculations, Brannigan asks Carlisle what factors determine the bid–offer spreads Nexran may face. Carlisle makes the following statements:

The conversation then moves to a discussion of some recent Nexran transactions. Six months ago, a European customer placed an order for EUR 20 million of oil field construction equipment with delivery and payment scheduled to take place one year later. Nexran hedged all of its exposure to the euro by entering into a forward position at a forward price of USD1.1716/EUR.

Nexran has just been informed by the customer that because of the collapse in oil prices, it is canceling the order. Brannigan tells Carlisle to mark the forward position to market to facilitate exiting the currency hedge. (Exhibit 2 provides information about current FX rates and interest rates.)

Exhibit 2

Six-Month Forward and MRR

The next transaction considered is a recently signed multiyear contract with a customer located in the country of Morlundan. Nexran will sell 25 pieces of equipment per year at a fixed price, with the sale priced in the Morlundan pound. Morlundan has a floating exchange rate, and capital flows are highly mobile. Morlundan also has an expansionary monetary policy with a restrictive fiscal policy. Brannigan asks Carlisle to determine the appropriate action Nexran should take to manage its Morlundan currency risk based on that country’s economic policies.

As a final item, Brannigan explains the impact of the balance of payment flows on exchange rates. She notes that in recent years, Nexran sold a sizable portion of its products to the Trundool Republic, a country that is running large current account surpluses versus the United States. Nexran’s sales to the Trundool Republic are expected to be a major component of the company’s future total sales. Consequently, Brannigan believes Nexran should hedge against a potential decline in the USD relative to the TRD because she is concerned that the Trundool Republic may decide to reduce its USD-denominated assets.

Question

Which of Carlisle’s statements about bid–offer spreads is the most accurate?

选项：

A.The statement regarding market liquidity B.The statement regarding pricing on large trades C.The statement regarding Nexran’s credit rating

解释：

Solution

C is correct. A client’s credit risk can be a factor because a client with a poor credit profile may be quoted a wider bid–offer spread than one with good credit, reflecting the greater settlement risk.

A is incorrect. The interbank FX markets are most liquid when the major FX trading centers are all open. The two largest, London and New York, overlap from approximately 8:00–11:00 a.m. NY time. As such, the interbank market for most currency pairs is typically most liquid during those hours, which is well after the open in London.

B is incorrect. Transaction size can affect the bid–offer spread. Typically, the larger the transaction, the further away from the current spot exchange rate the dealing price. Wider spreads on larger trades reflect the greater difficulty the dealer faces in “laying off” the FX risk in the interbank market.