A PNG exporter selling to Australiahas bought an AuD put option witha strike price of 0.4. The cost of theoption was 50 basis points. TheAUD is tradine at 0.38 when thefunds are recelved What is theeffective exchange rate on theproceeds?A. 0.4040B. 0.3950C. 0.3850D. 0.3750

Steps to Calculate the Effective Exchange Rate:The exporter has the option of selling AUD at the…

Answered: A PNG exporter selling to Australia has…

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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The one-year interest rate in Australia is given as 0.5% and the one year interest rate in New Zealand is given as 1%. The spot rate of the New Zealand dollar is A$0.95. You will receive 10,000 New Zealand dollars in one year.(a) Using the international Fisher effect, calculate the expected change in the exchange rate for the New Zealand dollar.(b) Using your answer to (a), calculate the amount of Australian dollars you will receive when converting the New Zealand dollars to Australian dollars in one year at the spot rate at that time.
An investor based in the US invests $1,200 in Mexico and this generates a future value in one year of $1,344.44, US. If the interest rate in Mexico is 10% and the future expected exchange rate is Et41 = 5.4, this implies that the current exchange rate must be O 5.25 O 5.7 O 4.85 O 5.5
Suppose you have the following spot exchange rates: USD/AUD 0.5300 AUD/EUR 1.6428 USD/EUR 0.8782 a) Calculate the US dollar profit (per 1 USD), if any, on a three-point arbitrage. b) Calculate AUD profit (per 1 AUD), if any, on a three-point arbitrage. c) How can you explain the answers in (1) and (2)?
Suppose that the exchange rate is $0.92/Euro. The dollar-denominatedinterest rate is 4% and the euro-denominated interest rate is 3%.u = 1.2, d = 0.9, T = 0.75, n = 3, and K = $1.00.a. What is the price of a 9-month European put?b. What is the price of a 9-month American put?
The current spot exchange rate is AUD 1.00 = USD 0.80. The Australian risk‐free rate is 3.0% p.a. compounded continuously, whereas the US risk‐free rate is 0.8% p.a. compounded continuously. The no‐arbitrage price on a 9‐month forward contract written on the exchange rate is likely to be a) USD 0.813 / AUD b) AUD 0.787 / USD c) AUD 1.271 / USD d) AUD 1.230 / USD
Suppose that the current spot exchange rate is €0.830/S and the three-month forward exchange rate is €o.815/S. The three-month interest rate is 6.00 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or €830,000. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine the size of your arbitrage profit.
The one-year risk-free rate in the U.S. is 4.340 percent and the one-year risk-free rate in Mexico is 6.64 percent. The one-year forward rate between the Mexican peso and the U.S. dollar is MXN12.366/$. 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 $1.67 per £ and the three-month forward exchange rate is $1.69 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,670,000 or £1,000,000. Required: a. Determine whether the interest rate parity is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? c. Explain how the IRP will be restored as a result of covered arbitrage activities. Complete this question by entering your answers in the tabs below. Required A Required B Required C Determine whether the interest rate parity is currently holding. Determine whether the interest rate parity is currently holding.
A call option allows the holder to buy USD100,000 at an exercise exchange rate of 1.8000 (AUD/USD). If the premium paid is 0.005 Australian cents for each USD, calculate the net payoff at the following spot exchange rates: (a) 1.8020 (2.5 marks); (b) 1.8360 (2.5 marks); and (c) 1.7970 (2.5 marks). At what exchange rate will the holder break even?
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A PNG exporter selling to Australia has bought an AuD put option with a strike price of 0.4. The cost of the option was 50 basis points. The AUD is tradine at 0.38 when the funds are recelved What is the effective exchange rate on the proceeds? A. 0.4040 B. 0.3950 C. 0.3850 D. 0.3750