A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. Theone-year inflation rate in the U.S. is r$ = 2.5% and in the euro zone the one-year inflation rate is л€= 5.5%. The one-year forward exchange rate is $1.20 = €1.00; what must the spot rate be toeliminate arbitrage opportunities?O $1.2471- €1.00O $1.1547 €1.00$1.0200 €1.00O $1.2351 - €1.00

According to the purchasing power parity the purchasing power must be same all over the world and…

A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one one-year inflation rate in the U.S. is n$2.5% and in the euro zone the one-year inflation = 5.5%. The one-year forward exchange rate is $1.20 €1.00; what must the spot rate be eliminate arbitrage opportunities? $1.2471-€1.00 $1.1547-€1.00 O $1.0200 - €1.00 $1.2351 - €1.00

A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one one-year inflation rate in the U.S. is n$2.5% and in the euro zone the one-year inflation = 5.5%. The one-year forward exchange rate is $1.20 €1.00; what must the spot rate be eliminate arbitrage opportunities? $1.2471-€1.00 $1.1547-€1.00 O $1.0200 - €1.00 $1.2351 - €1.00

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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As of today, the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next three years in the U.S. is 2 percent and 3 percent in the euro zone. What spot exchange rate should prevail three years from now? Multiple Choice $1.00 €1.2623 €1.00 $1.2139 €1.00 $0.9903 €1.00 = $1.2379
A currency dealer can borrow $1,110,000 (or the equivalent in euros) for one year. The one-year interest rate is 2.90% in the U.S. and 6.20% in the euro zone. The spot exchange rate is $1.3993/€1.00 and the one-year forward exchange rate is $1.3368/€1.00. What arbitrage profit results if the trader borrows the maximum available funds? €62,635.70 OR $83,731.40 €36,630.00 OR $48,966.98 €18,585.78 OR $24,845.47 €78,920.98 OR $105,501.57 €11,985.50 OR $16,022.22 €16,022.22 OR $21,418.50
8
Suppose that the Eurozone is the domestic country and the United States is the foreign country. The spot exchange rate quote is S=e:$ = $1.25. Suppose further that the expected annual U.S. inflation rate is 8.91 percent and the expected Eurozone annual inflation rate is 12.87 percent. Calculate the expected spot rate and the approximate expected spot rate one year away
The yield on a 1-year bill in the U. K. is 7% and the present exchange rate is 1 pound = U. S. $1.65. If you expect the exchange rate to be 1 pound = U. S. $1.45 a year from now, the return a U. S. investor can expect to earn by investing in U. K. bills is a. 6.7% b. 3.2% c. 8% d. 5.97%
Assume that interest rates in the USA are 7.5% and in China are 3.5%. According to the Interest Rate Parity (IRP):a. what will be the PREMIUM or DISCOUNT of the forward rate? b. If the SPOT exchange rate of the Chinese Yuan (CNY) is 0.159177 dollars (USD) per Yuan (CNY), what will be the forward exchange rate in one year of the Yuan (CNY)?The alternatives are:a. Premium of 3.864734% and Forward exchange rate 0.165328768 CNY/USD.b. Premium of 3.864734% and Forward exchange rate 0.165328768 USD/CNYc. Discount of 3.72093% and Forward Exchange Rate 0.153254135 CNY/USDd. Discount of 3.72093% and Forward Exchange Rate 0.153254135 USD/CNYPlease detail each of your calculations
On January 31, 2019 the exchange rate between the US dollar and the euro was 1.14 USD/EUR. At the end of 2014, it was at 1.23 USD/EUR. Couple of years ago, A Big Mac cost 3.54 USD in the US. The price in the Euro Area was 3.42 EUR. Exchange rate was 1.28 USD/1 EUR. c) If law of one price would be true how much should it cost in the Euro Area? d) If Big Mac prices are perfect for determining PPP, is the Euro in comparison to the USD overvalued or undervalued? For how much? e) What is a definition of a nominal exchange rate in the value notation? Write an example.
The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00. What is the yen per euro cross rate? cross rate? €1.00 = ¥0.80 C1.00 = ¥125 €125 = ¥1.00 none of the options
DO NOT USE AI TO COMPLETE An investor enters today into a one-year-long currency forward on 1000000 units of foreign currency. The current exchange rate is 1.05 dollars per Swiss franc. Interest rates in the US and Switzerland are 3% and 4% per annum, respectively, with continuous compounding. A. What should be the delivery price for this contract? B. Explain the transactions that will occur at maturity if the spot exchange rate at that moment is1.03 dollars per Swiss franc
The current spot rate between the euro and dollar is €1.0951/S. The annual inflation rate in the U.S is expected to be 2.93 percent and the annual inflation rate in euroland is expected to be 2.39 percent. Assuming relative purchasing power parity holds, what will the exchange rate be in two years? Group of answer choices €1.0892/$ €1.0775/$ €1.0833/$ €1.1070/$ €1.1010/S
Given: interest rates are 6% in the U.S. and 15% in the U.K. The spot exchange rate for British pounds is 1.27 $/£ and the 1-year forward rate is F1 - yr = 1.19 $/£. You wish to borrow dollars. a. How can you effectively (synthetically) borrow $100,000 for one year without using the U.S. money market? (List each transaction you would make including the amounts of each currency involved. You may use either continuous compounding or discrete compounding as long as you show your calculations.) b. What is the implied interest rate on your synthetic loan? c. Should you borrow directly or synthetically, and why? d. How could an arbitrageur make a risk-free profit?
Today's spot exchange rate: 1 euro = $1.25.US interest rate (home interest rate) is 7%.EU interest rate (foreign interest rate) is 10%.a) If the IRP (Interest rate parity) holds, what should the forward exchange rate be today?b) Assume that today, you invest $500 in the EU market for one year and at the same time, enter a currency forward contract to sell euro in a year at the forward rate from part a). If today's spot exchange rate is: 1 euro=$1.32 instead of $1.25, show how much profits or losses you make next year.

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