3. Trading in foreign exchange What are spot rates and forward rates? Purple Whale Foodstuffs Inc., a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for £625 million, but the Japanese firm has 60 days before it must make the payment to Purple Whale Foodstuffs Inc. The spot exchange rate is 128.75 per dollar, and the 60-day forward rate is ¥133.45 per dollar. Is the yen selling at a premium or at a discount in the forward market relative to the U.S. dollar? The yen is trading at a discount in the forward market. In the forward market, the yen is trading at a premium. If the customer pays Purple Whale Foodstuffs Inc. the ¥625 million today, how much will Purple Whale Foodstuffs Inc. receive in dollars? $4.85 million $5.34 million $5.09 million $5.58 million Assuming that the forward market is correct and the spot exchange rate in 60 days will equal the 60-day forward exchange rate today, Purple Whale Foodstuffs Inc. would get more dollars if the Japanese firm paid off its account today

3. Trading in foreign exchange What are spot rates and forward rates? Purple Whale Foodstuffs Inc., a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for £625 million, but the Japanese firm has 60 days before it must make the payment to Purple Whale Foodstuffs Inc. The spot exchange rate is 128.75 per dollar, and the 60-day forward rate is ¥133.45 per dollar. Is the yen selling at a premium or at a discount in the forward market relative to the U.S. dollar? The yen is trading at a discount in the forward market. In the forward market, the yen is trading at a premium. If the customer pays Purple Whale Foodstuffs Inc. the ¥625 million today, how much will Purple Whale Foodstuffs Inc. receive in dollars? $4.85 million $5.34 million $5.09 million $5.58 million Assuming that the forward market is correct and the spot exchange rate in 60 days will equal the 60-day forward exchange rate today, Purple Whale Foodstuffs Inc. would get more dollars if the Japanese firm paid off its account today

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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Chapter 18, Question 2. Was incorrect the first time. Attached is a similar question with answers
On December 20, 2020, Momeier Company (a U.S.-based company) sold parts to a foreign customer at a price of 175,000 rials. Payment is received on January 10, 2021. Currency exchange rates are as follows: Date U.S. Dollar per Rial December 20, 2020 $ 1.27 December 31, 2020 1.24 January 10, 2021 1.20 How does the fluctuation in the U.S. dollar per rial exchange rate affect Momeier’s 2020 income statement?
Last year, the Mexican peso/U.S. dollar exchange rate was MXN13.3872/$. Today, the exchange rate is MXN16.5307/$. A U.S. firm has total assets worth MXN14,790,000 located in Mexico that did not change in value over the year. What was the change in the value of the assets in dollars on the company's U.S. balance sheet? Multiple Choice −$193,736.57 $210,087.71 −$210,087.71 $0 $193,736.57
Suppose that the U.S. firm Halliburton buys construction equipment from the Japanese firm Komatsu at a price of ¥250 million The equipment is to be delivered to the United States and paid for in one year. The current exchange rate is ¥96 = $1. The current interest rate on one-year U.S. Treasury bills is 6%, and on one-year Japanese government bonds the interest rate is 4%. a. If Halliburton exchanges dollars for yen today and invests the yen in Japan for one year, it will need to exchange today in order to have ¥250 million in one year. (Round your response to the nearest dollar)
The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A scanner sells for $65.45 in the United States. The exchange rate between the U.S. dollar and the Swiss franc (SFr) is $0.8245 per Swiss franc. Suppose the price of the scanner in Switzerland was actually SFr 63.50. Assuming no transaction costs, transportation costs, or import restrictions, PPP predicts that the demand would (decrease or Increase) in Switzerland.
At today's spot exchange rates 1 U.S. dollar can be exchanged for 10 Mexican pesos or for 110.75 Japanese yen. You have pesos that you would like to exchange for yen. What is the cross rate between the yen and the peso; that is, how many yen would you receive for every peso exchanged? Do not round intermediate calculations. Round your answer to two decimal places. yen per peso
Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million payable in one year. The money market interest rates and foreign exchange rates are given as follows: The U.S. one-year interest rate: 6.10% per annum; The euro zone one-year interest rate: 9.00% per annum; The spot exchange rate: $1.50/€; and The one-year forward exchange rate: $1.46/€. Assume that Boeing sells a currency forward contract of €10 million for delivery in one year, in exchange for a predetermined amount of U.S.dollars. Which of the following is/are true? On the maturity date of the contract Boeing will (0) have to deliver €10 million to the bank (the counter party of the forward contract). (ii) take delivery of $14.6 million (iii) have a zero net euro exposure (iv) have a profit, or a loss, depending on the future changes in the exchange rate, from this sale. Oi) and (iv) O (0) and (iv) O (i), (ii), and (iv) (0.0) and (iii)
The one-year risk-free rate in the U.S. is 4.340 percent and the one-year risk-free rate in Mexico is 6.64 percent. The one-year forward rate between the Mexican peso and the U.S. dollar is MXN12.366/$. What is the spot exchange rate? Assume interest rate parity holds. Multiple Choice MXN13.969/$ MXN14.939/$ MXN12.366/$ MXN12.639/$ MXN12.099/$
Currently, the spot exchange rate is $0.84 per A$ and the one-year forward exchange rate is $0.80 per A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,190,476, which is equivalent to $1,000,000 at the current spot rate. Required: Determine if IRP is holding between Australia and the United States. If IRP is not holding, explain in detail how you would realize certain profit in U.S. dollar terms. What will be your arbitrage profit? Explain how IRP will be restored as a result of arbitrage transactions you carry out above.

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