Your Questions About Investing In Foreign Coins

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Donald asks…

Finance Questions!!!?

1. Assume the following information:

Value of an Australian dollar in USD, bid/ask: $0.67 / $0.69
Value of Mexican peso in USD, bid/ask: $.074 / $.077
Value of an Australian dollar in Mexican pesos, bid/ask: 8.2 / 8.5

Assume you have $100,000 to conduct one cycle of triangular arbitrage. What will be your profit from implementing this strategy? Remember to pay careful attention whether you’re trading at the bid or the ask with the bank.

a. $6,133
b. $2,368
c. $6,518
d. $13,711

2. A firm is constructing a portfolio of two projects. Project A has an expected return of 10% and a standard deviation of 5%, project B has an expected return of 20% and a standard deviation of 7%. The correlation between the two project returns is 0.3. What is the expected return and variance of the portfolio of projects, if the firm plans to invest 1 million USD in project A, and 2 million USD in project B?
Answers
a.13.33%, 0.00775
b.16.67%, 0.00411
c.13.33%, 0.04729
d.16.67%, 0.03713
e.16.67%, 0.00292

3. Happy Steve’s Loans is owned by Steve, who is well known to be a pretty happy person. To maintain his happiness, he would like to keep his total expected annual return on his loan portfolio at 10% or greater. This year, Steve plans to make 1000 loans of $1000 each, and he estimates, based on his past experience that approximately 10% of his borrowers will default. When a borrower defaults, it is generally a total loss and he doesn’t see a penny of the money owed. What must be the minimum stated interest rate on his loans in order for him to maintain happiness? Assume Steve is risk-neutral (has a linear utility function).

a.14.98%
b.22.22%
c.18.24%
d.10.00%
e.5.06%

4. Assume your utility function is the natural log (i.e., the utility to you of any amount of wealth X, is ln(X)). Further assume that your current wealth is 1000 USD. You are facing two choices. Choice one is a certain payoff of 1000 USD. Choice two is a payoff contingent on a coin toss. If coin comes up tails, you get 500 USD. What must be the payoff if the coin comes up heads, for you to be indifferent between choice one and choice two? Remember, that you are indifferent when the expected utility to you from both choices is the same.

a.1933.33
b.1000
c.1666.66
d.500
e.1500

5. The ____ the correlation in project returns is over time, the ____ will be the project portfolio risk as measured by the portfolio variance.

a.none of these
b.higher; lower
c.lower; higher
d.lower; lower

6. International Products, Inc. is considering an investment project in a foreign country. The firm thinks that the three most important risks that will affect the value of the project are the possible increase in tax rates (estimated probability 20%), a recession in the country’s economy (estimated probability 30%), and a contemporaneous entry of a competitor firm that will make it more difficult to gain market share (estimated probability 10%). If all of these events are independent, what is the combined probability that the tax rates remain where they are, economy stays normal, and a competitor enters the market?

a.11.2%
b.20.5%
c.15.6%
d.5.6%
e.7.8%

7. You are considering the riskiness of a project and have identified 5 salient factors that can significantly affect the outcome. You estimate the number of possible outcomes for the 5 factors as 2, 2, 4, 3, 6, respectively. Assuming all factors are independent, what is the total number of unique situations that completely describes the possibility space?

a.144
b.24
c.288
d.17
e.472

8. A one-year project that will cost you 100,000 USD is expected to generate 150,000 USD at the end of the year. However, there is a possibility that economic conditions will turn sour, in which case the project will only generate 110,000 USD. If the probability of a souring economy is 30%, and your required rate of return for the project is 15%, what is the expected net present value of the project?

a.30.4 thousand
b.95.6 thousand
c.254.5 thousand
d.20.0 thousand
e.50.2 thousand

Justin answers:

I think you’ll have better luck getting answers if you post these separately. That said, here’s how to work problem #1.

Determine the imputed cross- rate AUS/PESO using the first two exchange rates: divide AUS/US bid by PESO/US bid to get the AUS/PESO ask:
0.67 / 0.074 = 9.05405 Pesos per AUS (ask), do the same with the two asks, to get the bid:
0.69 / 0.077 = 8.96104 Pesos per AUS (bid)
remember, you can sell the quoted currency at the bid, and buy the quoted currency at the ask.

Comparing the imputed cross-rate (bid-ask: 8.96104 – 9.05405) with the “bank’s” bid-ask of 8.2 – 8.5 pesos per AUS, you ultimately want to buy AUS from the bank with PESOs (at 8.5), and sell AUS through the cross-rate (at 8.96104). To buy AUS with PESOs, you must buy PESOs first with USD.

The series of moves is:
US>Peso>Aus>US

sell $100,000 >buy Pesos at ask: 100,000 / 0.077ask = 1298701.299PESO
sell Peso>buy Aus at 8.5 ask = 1298701.299 / 8.5 = 152788.3881AUS
sell Aus>buy USD at 0.67 bid = 152788.3881 * 0.67 = 102,368.22 USD
Profit = $2,368.22

#2:
Where W= weight, o = std dev., a=asset a, b=asset b, p = correlation, and E(r) = Expected Return, R= return
E(r) = Wa(Ra) + Wb(Rb)
E(r) = 0.333333(0.10) + 0.66666667(0.20) = 0.166666667

Portfolio o^2 = Wa^2(oa^2) + Wb^2(ob^2) + 2(Wa*Wb*oa*ob*p)
= 0.00292222
Answer: E

#3: 1.10 = (900,000y + 900,000) / 1,000,000
y = 0.2222 <interest rate: 22.22%

#5: lower, lower (as evidenced by the work in #2)

#6. With independence you can multiply the probabilities. Since the given probabilities are for events, and you want to calc the combined probabilites that these events do NOT occur, you use (1 – each probability) and multiply. Ans: 5.6%

#8. E(r) = (150,000 * 0.70) + 110,000(0.30) = 138,000
NPV = (100,000) + 138,000/1.15
= 20,000

David asks…

Plannig trip to italy please help?

i was wondering if any one has been to italy and could recomend places to stay places to eat and places to see and visit please keep in mind this is a schhol excurision probebly in Yr 10 next year dont want to spend a lot of money on anything but souverniers,lodging and dining
i am studing italian and speak it moderatly well as far as i know we will be traveling to all the major areas of italy
ie rome milan florence torino and other places such as amalfi? etc

Justin answers:

I can’t make any specific recommendations, but I can give you some general advice.

Don’t miss Florence. It was incredible, and one of my favorite places on the trip. It wasn’t as busy as Rome, so we really enjoyed strolling around in the evening and going for gelatos in the plaza. Also, the statue of David is absolutely unbelievable, especially when you consider it was all done by hand – no power tools, no CAD drawings, nothing. The detail is incredible, but possibly completely lost on a 10 year old.

Capri was beautiful, very relaxing. We would ahve liked to have seen the Blue Grotto, but the tides were too high the day we were there. However, it looks like something a 10 year old would think was really cool.

Try to eat local as much as possible. You may be tempted, especially in large cities like Rome, to look for more americanized restaurants, but resist the temptation. Ask your hotel clerk where the locals eat – the food in Italy is amazing.

Learn to say at least please and thank you in Italian. It goes a long way towards locals being nice to you and helping you. Everyone appreciates when their culture and language is respected by foreign vistiors.

Carry some loose change with you. When we were there, you had to pay for some of the public bathrooms. I don’t know if this is still the case, but it never hurts to have a few coins in your pocket. Plus, you’ll need coins to toss in the Trevi Fountain in Rome to make a wish.

The leaders of the group we were with traveled quite a bit and relied on the Let’s Go series of books for the best travel advice. Rick Steves is another good source – he tries to seek out local food and advice whenever possible.

Invest in a travel bag like this one from LL Bean (http://tinyurl.com/38ac34). You can keep in on under your shirt and carry everything you need. Watch out for groups of children. They will clamour around you, distracting you while one or two pick pockets. Keep your money close to your body at all times.

One of the weirdest places we went in Rome was the Capuchin Crypt, aka The Bone Church. It was really something to see: http://en.wikipedia.org/wiki/Capuchin_Crypt

Ken asks…

can someone help me with my online class?

Question 4

To work well as a medium of exchange, an item must be
Answer

portable.

durable.

easily divisible.

all of the above.
2 points
Question 5

A claim on the property and income of the borrower is called
Answer

a capital gain.

an equity.

a financial asset.

an investment.
2 points
Question 6

What is one of the most promising strategies for success that an investor can follow?
Answer

Invest in penny stocks.

Invest consistently over a long period of time.

Concentrate on options rather than equities.

Look for complex investments rather than simple ones.
2 points
Question 7

An investor views a corporate bond as
Answer

a tax-free investment.

a way to obtain ownership in a corporation.

a financial asset that generates interest.

a risk-free investment.
2 points
Question 8

How many shares were traded on this particular day?

Use the table to answer the questions.

Answer

22,015

2,201,500

22,015,000

2,2501
2 points
Question 9

Fiat money is
Answer

money in checking accounts.

money that has value as a good.

money that is valuable only because the government says it is.

near money that can easily be converted into money.
2 points
Question 10

United States Treasury Bonds
Answer

are generally regarded as the safest of all financial assets.

pay the highest return.

both a and b are true statements

neither a nor b is a true statement
2 points
Question 11

The Dow-Jones Industrial Average
Answer

advertises good stock investments.

involves only the bond market.

represents the best capital markets.

is based on the performance of 30 representative stocks.
2 points
Question 12

What is the value of a ten dollar bill?
Answer

The value of the goods and services it can buy.

It is hardly worth the paper it is printed on.

The cost of the paper it is printed on.

The ten dollars in gold used to back it up.
2 points
Question 13

Exceptionally risky bonds are
Answer

mutual funds.

pension funds.

individual retirement accounts.

municipal bonds.

junk bonds.
2 points
Question 14

An example of using money as a store of value would be
Answer

lending your brother $25.00.

opening a checking account.

opening a savings account.

purchasing new jeans for $50.00.
2 points
Question 15

Most of the money in circulation is in
Answer

paper money.

checks.

savings.

coins.
2 points
Question 16

An example of the barter system would be when
Answer

you do the taxes for your dentist in return for him cleaning your teeth.

you pay cash for purchases instead of using a credit card.

you use a credit card for your purchases instead of paying cash.

you use a foreign currency instead of dollars to make your purchases.
2 points
Question 17

A city that wants to finance a new library would issue
Answer

junk bonds.

treasury bonds.

savings bonds.

municipal bonds.
2 points
Question 18

Tax exempt bonds issued by state and local governments are
Answer

mutual funds.

pension funds.

individual retirement accounts.

municipal bonds.

junk bonds.
2 points
Question 19

A long-term, tax-sheltered time deposit that an individual can set up to draw on in the future.
Answer

mutual fund

pension fund

individual retirement account

municipal bond

junk bond
2 points
Question 20

More money becomes available for economic growth when
Answer

people save.

interest rates are high.

there is high unemployment.

only non-bankk institutions are involved.
2 points

Question 22

All of the following are steps in making a successful budget EXCEPT
Answer

make list of all income.

keep records of all expenses.

charge what you can’t afford.

organize expenses into categories.
2 points
Question 23

It is important to keep accurate records of your bank account because
Answer

your banking record becomes an important part of your credit history.

it looks nice in your check register.

you will be tested over it later.

your bank requires it.
2 points
Question 24

Disadvantages of credit are
Answer

overspending.

finance charge.

both A & B.

neither A nor B.
2 points
Question 25

All of the following are types of bankruptcy EXCEPT
Answer

Chapter 2.

Chapter 7.

Chapter 9.

Chapter 11.
2 points
Question 26

Insurance can be defined as
Answer

part of credit.

transfer of risk of a potential loss.

a risky purchase.

transfer of loss.

Justin answers:

Yeah let me do all your work for you, I’ll get right on it.

George asks…

Please help with Business Accounting questions?

I have answered all 100 questions but I am unsure about my answers to these few… Please help

8. Which of the following statements about when the Fed increases the reserve requirement
is correct?
A. Interest rates go down.
B. Banks have more money to lend.
C. Inflation tends to go up.
D. Banks have less money to lend.

I said A

9. Gross profit (gross margin) is equal to
A. gross sales minus net sales.
B. operating expenses minus taxes.
C. revenue minus cost of goods sold.
D. cost of goods sold minus operating expenses.

I said D

10. The first public offering of a corporation’s stock is called a/an _______, and it’s
handled by the _______ market.
A. IPO; primary C. PSO: secondary
B. IPO; secondary D. PSO; primary

I said A

11. The primary function of the Fed’s Board of Directors is to
A. supervise banks. C. regulate credit.
B. set monetary policy. D. buy government bonds.

I said C

13. An index fund is a mutual fund that
A. guarantees dividends.
B. offers a minimum return.
C. invests in stocks that follow Moody’s or other rating indexes.
D. invests only in certain kinds of stock, such as those related to transportation.

I said D

14. In referring to the money supply, which of the following can be accessed quickly and
easily and includes coins and paper money as well as checks?
A. M-1 C. M-3
B. M-2 D. e-cash

I said A

15. Daddy Warbucks bought Annie some stock for her birthday. The stock provides a fixed
dividend, and, if the dividend isn’t paid when it’s due, the missed dividend will accumulate
to be paid later. Daddy bought Annie _______ stock.
A. common C. convertible
B. preferred D. preemptive right

I said B

16. When a European coffee maker becomes less expensive to buy in the United States,
you could probably say that we’re experiencing a _______ dollar.
A. falling C. rising
B. inflated D. stable

I said B

17. Earnings per share, return on sales, and return on equity are all _______ ratios.
A. activity C. liquidity
B. profitability D. debt138

I said C

18. Regarding bonds, which statement is most accurate?
A. Bond holders are creditors, not owners.
B. Bond holdings are nearly always converted to common stock.
C. Bonds are a primary source for a company’s long-term funding.
D. It’s illegal for a firm to offer bonds with a floating dividend rate.

I said B

19. The first step in taking control of your finances is
A. keeping track of all your expenses.
B. preparing a budget.
C. paying off your debts.
D. taking an inventory of your assets.

I said D

20. The first step in the accounting cycle is
A. putting information into journals.
B. preparing a trial balance.
C. analyzing and categorizing documents.
D. posting transactions to ledgers.

I said C

22. A specialized accounting book in which information is posted into specific categories so
managers can find information about one account in the same place is called a
A. ledger. C. trial balance sheet.
B. journal. D. double-entry book.

I said D

23. When planning for your future, an investment in a college education will, above all,
A. provide you with new ideas.
B. give you a chance to learn about different ways of life.
C. improve your earning potential.
D. guarantee a certain desired job.

I said C

24. The type of accounting concerned with providing information and analyses to managers
within the organization is referred to as
A. financial accounting. C. auditing.
B. managerial accounting. D. tax accounting.

I said A

25. With respect to the Federal Reserve, the discount rate is the
A. interest rate charged for loans to member banks.
B. amount of money member banks must keep on hand at the Fed.
C. rate the Fed charges for selling bonds.
D. interest rate banks charge other banks

I said B

Justin answers:

I’ve only commented on the ones that are incorrect…
8. D more reserves=less to lend
9. C
11. B
13.C
16. C a rising dollar makes foreign goods less expensive
17 B
18 A
19 a toss-up, one could argue B.
22 B
24 B…the hint is in the words manager & managerial, see: http://en.wikipedia.org/wiki/Management_accounting
25 A

Michael asks…

Are government mint silver and private mint silver worth the same?

Are government mint silver and private mint silver worth the same in any given occasion? Will they both be able to sell the same at any time as the silver price fluctuates? Is it better to invest in private mint rounds or to invest in government mint coins, both being 1oz and .999 pure silver. Aside from specific dates, such as a government mint coin from the 1990s, whose price will definitely go higher due to the time period, will, for example, a pure .999 silver Scottsdale Silver or Quality Silver Bullion coin be worth the same as a government mint 2010 .999 silver Walking Liberty coin in today’s market? I’m sorry if it’s difficult to comprehend what I am trying to ask, for I am rushing through this and not revising it.

Justin answers:

4 Things Matter:

Purity
Type of Metal
Weight
Hallmark (Name Behind it that gives it credibility)

Actually, private should be worth more. What business is more efficient? – the one run by a private company with market demands or a gov’t run business?

The US Mint is incredibly pathetic. Massive delays, poor customer service, failure to increase production to meet demand. And frankly, they buy the blanks from private mint and all they do is “strike” their logo on it and put a big premium on it. I’d rather support free enterprise/American business than our gov’t with has no respect for financials. As our economy goes further into this muck, consumers are waking up and preferring private bullion MORE !

If you are investing in the metal, best to buy a well known private hallmark bullion product like Scottsdale Silver. Better prices than the US mint, yet they get incredible resale premium on ebay which is the ultimate tell-tale of what things are worth. That’s usually my best indicator for market demand with more than 15,000 silver bullion listings at any given time, it’s a good way of keeping tabs on the market.

Other big names are Johnson Matthey/Englehard but they are also generally the brands that get knocked off by the Chinese. Engle is bankrupt (so no longer producing) and JM doesn’t make new retail size bars anymore. So if you want NEWLY minted bullion in these names, out of luck.

Also, for those that like to buy American, JM is foreign owned.

I don’t know the other name you mentioned and not sure they are recognized globally so try and stick with the top shelf.

Old Silver bull market vs Today’s silver bull — and personal preference of course.

Mark asks…

401k worth more than Gold?

So I’ve been socking money away for the last 15 years into a 401k.

Now I’ve always been in this for the long run, so I’ve left pretty much all of my money in a fund that tracks the S&P 500.

Now obviously, this last 2 years hasn’t been too kind to my 401k. I lost over 30% in 2008, and 2009 is nearly flat for the year thus far.

My fear of course is that inflation, and or more financial institutions (CIT anyone) are going to go down in flames. The feds lending about 1 trillion bucks to undisclosed companies also doesn’t bode well. (IMHO)

So, I’m looking at doing something I consider a bit drastic.

Close out my 401k (Paying the 15% tax, the 10% penalty, and more fees I’m sure.) Take what is left of it (I think about 60k gross) and turning it into gold coins.

The other more ‘sane’ option is to move it into other funds. I don’t take as many hits, and no fees to move it to track commodities, etc.

Or of course try and get into a fund that tracks more foreign investments. Maybe in their funds I won’t get laundered as bad.

Opinions? Ideas?
My only debt is my house…

I am aware of the 1980 price drop, that is what I’m afraid of happening, so silver+platinum+gold is a good idea?
Not all of my earnings in my 401 have gone.

I have been in it long enough and with the employer matching, I am in the positive. However my fear is that will change with large inflation.

– I do not like the idea of multiple houses, mostly because… Well I’m lazy.

– At this point unless someone comes up with a better idea I think I’ll move my 401 into more international markets (they have some options) and not put more then matched into it. Take the excess and start purchasing precious metals starting soon(tm).

Justin answers:

Some very few 401k plans allow you to roll into an IRA while you are still employed. Not many but a few. You might check with your fund administrator and find out if that is an option. One of the problems with 401k plans is that the investment options are very limited and sometimes those limited options are not all that good. Do you realize that the S&P 500 over the last 10 years has made a negative return? Even long term wise that is very depressing. This may or may not be a good time to invest in silver and gold. I do not know. I do know that one of the very successful hedge fund managers has taken an extremely large position in gold recently–several billion dollars worth. I also know that the government is bound and determined to inflate the economy no matter what it takes (inflate is the root of inflation). I might also add that the only way the government has of repaying its debt is if it can repay in dollars that are worth a whole lot less than those which they borrowed.

It is not a good idea however to own too much gold, I do not think. It does not pay dividends and it has to be safely stored somewhere. However, owning about 10% of ones assets is not without reason. Sort of a hedge if you will. What you hope will happen is that that hedge will loose 50% of its value, because if that does happen the other 90% of your investments is most likely going to increase in value about 75%. Anyway that has been the trend in the past. You can buy gold in an IRA account under the ticker GLD.

As for your investment in the 500, that is not so diversified as one should consider for ones investments. It is all U S large cap companies cap weighted towards the very largest. For some odd reason there has been a lock step movement towards investing in the 500. We hear all the time that 70% of mutual funds under perform the 500. How depressing that sounds. Interestingly enough 100% of mutual funds investing in Chinese stocks have outperformed the 500 by about 20 to 1 over the last 10 years. Same for India funds. Same for Latin America. One might possibly get the impression that the US is perhaps a declining economic entity and that it is perhaps time to look elsewhere for investment opportunities.

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