2. You are a U.S. investor and wish to buy 10,000 shares of Club Méditerranée ("Club Med"). You can buy them on the Paris Bourse or on SEAQ International in London. You ask the brokers to quote you net prices (no commissions paid). There are no taxes on foreign shares listed in London. Here are the quotes: London (in £) Paris (in €) $/£ (dollars per pound) €/S (euros per dollar) What is your total dollar cost if you buy the Club Med shares at the cheaper place? 56-574 782-78% 1.5000 1.5040 0.91100 0.91200

2. You are a U.S. investor and wish to buy 10,000 shares of Club Méditerranée ("Club Med"). You can buy them on the Paris Bourse or on SEAQ International in London. You ask the brokers to quote you net prices (no commissions paid). There are no taxes on foreign shares listed in London. Here are the quotes: London (in £) Paris (in €) $/£ (dollars per pound) €/S (euros per dollar) What is your total dollar cost if you buy the Club Med shares at the cheaper place? 56-574 782-78% 1.5000 1.5040 0.91100 0.91200

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 U.S. dollar-based investor buys shares in a Brazilian exchange-traded fund in local currency on January 12 that replicates the Bovespa (the Sao Paulo stock market index). The Bovespa is trading at 48,164 and the exchange rate is 2.66 reals per dollar. The investor closes out the trade a year later. At that time the Bovespa is trading at 51,000 and the exchange rate is 1.80 reals per dollar. a) What is the investor’s U.S. dollar return, in percent, on this transaction?
Suppose the quoted spot rates are EUR0.951/USD and JPY141.52/USD. You are a U.S. citizen that has recently graduated and applied for three corporate treasury roles with the following MNCs and are weighting up the offers they have provided you: Adidas (German): EUR129, 000 p.a Asics (Japan): JPY19,360,000 p.a. Nike (US): USD135,000 p.a The cost of a basket of goods in the US is currently USD 11,737. Rank these job offers from least to most attractive. To accept the job offer you must reside in the country in which the company operates. Suppose you're indifferent between living in Germany, the US. and Japan. Choose the correct option a. Nike, Adidas, Asics b. Adidas, Nike, Asics c. Adidas, Asics, Nike d. Asics, Nike, Adidas e. Asics, Adidas, Nike f. Nike, Asics, Adidas g. All offers are equally attractive
2
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Suppose you are a euro-based investor who just sold Amazon.com Inc. shares that you hadbought six months ago. You had invested 10,000 euros to buy Amazon shares for $120 pershare; the exchange rate was $1.15 per euro. You sold the stock for $135 per share and convertedthe dollar proceeds into euro at the exchange rate of $1.06 per euro. a) Determine the profit from this investment in euro terms.b) Compute the rate of return on your investment in euro terms.c) How much of the return is due to the exchange rate movement?
HSBC (a large British 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 Wombat 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.
In each of the following cases, indicate whether it would be appropriate for an FI to buy or sell a forward contract to hedge the appropriate risk. • A commercial bank plans to issue CDs in three months. • An insurance company plans to buy bonds in two months. • A thrift is going to sell Treasury securities it holds in its investment portfolio next month. • A U.S. bank lends to a French company: the loan is payable in euros. • A finance company has assets with a duration of six years and liabilities with a duration of 13 years.
Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make a profit based on the following rates. Explain specific steps that Jack Ma must take to make a covered interest arbitrage. CAD= Canadian Dollar JYP= Japanese Yen 6-month Canadian interest rate 1.6% per annum 6-month Yen interest rate 2.95% per annum Spot rate JYP 93.1395/CAD 6-month forward rate JYP 93.8380/CAD Step 1 1) Different i for Base rate -Quote rate = 2) Different between Spot and Forward = (1) + (2) = invest in _ borrow in _ Step 2 explain using table
8
Suppose you are a euro-based investor who just sold Microsoft shares that you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 per share; the exchange rate was $1.03 per euro. You sold the stock for $171 per share and converted the dollar proceeds into euro at the exchange rate of $0.94 per euro. First, determine the profit from this investment in euro terms. Second, compute the rate of return on your investment in euro terms. How much of the return is due to the exchange rate movement? (Do not round intermediate calculations. Enter your answer as a percent rounded to 1 decimal places.) Profit Rate of return 51.6 % Rate of return due to exchange rate movement %
Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make a profit based on the following rates. Explain specific steps that Jack Ma must take to make a covered interest arbitrage. CAD= Canadian Dollar JYP= Japanese Yen 6-month Canadian interest rate 1.6% per annum 6-month Yen interest rate 2.95% per annum Spot rate JYP 93.1395/CAD 6-month forward rate JYP 93.8380/CAD
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