16. You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.50 €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.25, how much money can you make from arbitrage? A. No arbitrage is possible. B. $66,667 C. $62,500 D. $93.750

16. You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.50 €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 = €1.25, how much money can you make from arbitrage? A. No arbitrage is possible. B. $66,667 C. $62,500 D. $93.750

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A 141. Subject:- finance
(b) Jackton Company limited is a UK firm that has bought goods from a US Supplier and must pay US $4 million in three month time. The company finance director wishes to hedge against the foreign exchange risk and is considering 3 methods. Using forward exchange contract Using the money market hedge Using lead payment The annual interest rate and exchange rates are given below; US S UK £ Deposit Rate 1 month 7% Borrowing rate 10.25% Deposit Borrowing 10.75% 3 month 7% 10.75% 4% 14% 4.25% Spot rate £:1 : $ 1.8625 1.8635 1 month forward 0.6-0.58 cents premium 3 months forward 1.80 1.75 cent premium Advice the company on the best method to use. (Show all your workings) [12 marks]
Assume the bid rate of an Yen dollar is $ 1.8 while the ask rate is $ 3.5 at Arab Bank.Assume the bid rate of an Yen dollar is $3.4 while the ask rate is $5.7 at Palestine Bank. Given this information, what would be your gain if you use $8876.7 and execute locational arbitrage? =8876.713.5^ * 3.4b =8876.7/5.7^ * 3.5c =8876.7/3.4^ * 1.8d = 8876.7 /3.5^ * 5.7
A bank in London, Ontario has a buying rate of CHF 1 = C$1.3547. If the exchange rate is CHF 1 = C$1.3841, calculate the rate of commission that the bank charges.
b) Complete the following sentences based on your readings on International Financial Management. (One term may be used more than once) i. ii. iii. Suppose the spot exchange rate is 2 US dollars per British pound. The forward exchange rate is 0.5263 pound per dollar. The pound is selling at a forward Investing in a financial instrument other than one's home currency and locking in the proceeds through the forward rate is called states that difference between the forward and spot exchange rates is related to the interest rate differential between the currencies.
H3. The Central Bank of the Bahamas pegs the Bahamian Dollar to the United States Dollar at a price of 1 BSD per USD. As an analyst for XYZ Consulting Inc., you have been asked to predict the behavior of key macroeconomic variables in the Bahamas for different policy scenarios. Using all the appropriate diagrams, your analysis must describe the Bahamian money and output markets, as well as the foreign exchange market. To perform this task, you must assume that prices are sticky: fixed in the short-run and flexible in the long-run. The scenarios are: a) A temporary restrictive monetary policy in the Bahamas. b) A temporary restrictive fiscal policy in the Bahamas.
2. Money Market Hedge on Receivables Assume that Parker Company will receive 200,000 Canadian dollars in 360 days. Assume the following interest rates: 360-day borrowing rate 360-day deposit rate U.S. 6% 4% Canada 5% 3% Assume the forward rate of the Canadian dollar is $.80 and the spot rate of the Canadian dollar is $.78. If Parker Company uses a money market hedge, how much U.S. dollars will it receive in 360 days from its Canadian dollar receivable? (round to whole dollars) (2 points)
The treasurer of a major U.S. firm has $41571485 to invest for three months. The annual interest rate in the United States is 0.25% per month. The interest rate in Great Britain is 0.63% per month. The spot exchange rate is £0.72, and the three-month forward rate is £0.74. Ignoring transaction costs, what would be the NPV of investing in Great Britain as opposed to invest in the U.S.?
A large bank is quoting the following spot exchange rates for number of YEN per USD, number of THB per USD and number of YEN per THB respectively. YEN/USD = 116.91 -- 116.95 THB/USD = 44.30 -- 44.40 YEN/THB = 2.6900 -- 2.7100. You are trader at Axe Capital, a US hedge fund, and your job is to try to find arbitrages in the currency markets. You have 10 mio USD risk capital provided by your fund. Using the 10 mio USD risk capital, how much arbitrage (guaranteed risk-free) profit can you make. If there is no arbitrage possible, enter zero. Give your answer in USD to the nearest USD. Please Do your calculation in excel and do not round anything until the very end.
The treasurer of a major U.S. firm has $38 million to invest for three months. The interest rate in the United States is .55 percent per month. The interest rate in Great Britain is .59 percent per month. The spot exchange rate is £.76, and the three-month forward rate is £77. Ignore transaction costs. a. If the treasurer invested the company's funds in the U.S., how much would the investment be worth after three months? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. b. If the treasurer invested the company's funds in Great Britain, how much would the investment be worth after three months in U.S. dollars? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89. a. U.S. investment b. Great Britain investment
A bank in London, Ontario charges 2.50% commission to buy and sell currencies. Assume that the current exchange rate is US$1 = C$1.3599. a. How many Canadian dollars will you receive from the bank if you sell US$1,340? Round to the nearest cent b. How much commission will you pay the bank for this transaction? Round to the nearest cent
In New York, you can exchange $1 for €0.8575 or £0.7. Suppose that, in Berlin, £1 costs €1.1515. How much profit can you earn on $10,998 using triangle arbitrage?

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