A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 13% interest. Assuming capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero.
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- A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 13% interest. Assuming capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero. Select one: a. 7% b. 6.6% C. 6.2% d. 5.4%Suppose that the invester of GMO has an extra cash reserveof $700,000 to invest in Mexico. The expected inflation rate is 1.29% in US and 3.37% in Mexico. The expected interest rate is 1.49% per year in the United States and 6.47% per year in Mexico. Currently, the nominal spot exchange rate is 19.780 Pesos per dollar and the nominal one-year forward rate is 19.790 pesos per dollar. The future spot exchange rate is 19.680 Pesos per US $1. Assess how he can construct an arbitrage portfolio based on appropriate calculations.An American firm wants to borrow 100 million USD for 1 year to fund a capital investment project. The firm can borrow the money from a U.S. bank at an interest rate of 6%. Alternatively, the firm could borrow British pounds at a rate of 3% a year. At the end of the year, the firm would pay back the loan and interest. The initial exchange rate is 1 GBP = 2 USD. If at the end of the year the exchange rate changes from 1 GBP = 2 USD to 1 GBP = 3 USD, what was the actual cost of borrowing (effective interest rate) if the American firm chose to obtain the loan in British pounds?
- The 1 year (lending or borrowing) rate in the UK is 8%; the 1 year (lending or borrowing) rate in the United States is 5%. Currently the spot exchange rate if $1.81 per British pound; the 1 year forward rate is $1.79 per British pound. If you are able to borrow $1,000,000 in the US to lend (as British pounds) in the UK, how much a risk free profit can you create over the next year? Give typing answer with explanation and conclusionSuppose the annual interest rates in the U.S. (home nation) and the U.K (foreign nation) are 8% and 6%, respectively. A U.K. interest arbitrager decides to invest £10,000 in the U.S for three months. Given that the current spot rate is $2 per pound, calculate the EUD from investing in the U.S., assuming that on the maturity date the U.S. dollar is expected to depreciate by 1%. Interpret your result.Suppose the annual inflation rate in the US is expected to be 2.5 %, while it is expected to be 18.00 % in Mexico. The current spot rate (on 1/1/XO) for the Mexican Peso (MXN) is $0.1000. If the spot rate of MXN turns out to be $0.085 on 1/1/X1, the net cash flow of a US importer from Mexico will: Decrease Increase
- BOA (US Bank) believes that New Zealand dollar will appreciate over the next 90 days from US$0,48/NZ$ to US$0.50/NZS. The following information is available. Country Interest Rate (annual) 7.20% New Zealand 6.8% BOA has the capacity to borrow $5 million from Chase Bank. If BOA forecasting is correct, what will be its US$ profit from this FX speculation over the 90 days period? US O around $0.26 million O around $0.21 million O around $5.10 million. O around $5.30 millionSuppose that a US-based company is buying Chinese goods. Current exchange rate for Chinese Yuan is 0.15 USD. The price of goods is ¥13,000 per unit. The company is buying 800 units per year with a fixed contract for the next two years. Suppose that Chinese Yuan appreciate to 0.2 USD in the next year. The US importer will respond to this by lowering the demand to 600 units in the third year. What cash flow will be reflected on the balance of payments at the end of the third year? Your Answer:Suppose you are a U.S. investor who is planning to invest $785,000 in Mexico. Your Mexican investment gains 10%. If the exchange rate moves from 12.2 pesos per dollar to 12.5 pesos per dollar over the period, what is your total return on this investment?
- Due to the integrated nature of their capital markets, investors in both the U.S. and U.K. require the same real interest rate, 2.1%, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 2.5% in the U.S. and 3.5% in the U.K. for the next three years. The GBP/USD rate is currently 1.3016. Compute the nominal interest rate per annum in the U.K., assuming that the Fisher effect holds. (X.XX%)Suppose that you are a U.S.-based importer of goods from the United Kingdom. You expect the value of the pound to increase against the U.S. dollar over the next 60 days. You will be making payment on a shipment of imported goods in 60 days and want to hedge your currency exposure. The U.S. risk-free rate is 4.2 percent, and the U.K. risk-free rate is 1 percent. These rates are expected to remain unchanged over the next 2 months. The current spot rate is $1.3084. Calculate the no-arbitrage price at which you could enter into a forward contract that expires in 60 days. (X.XXXX)Consider a U.S.-based company that exports goods to Switzerland. The U.S. Company expects to receive payment on a shipment of goods in six months. Because the payment will be in Swiss francs, the U.S. Company wants to hedge against a decline in the value of the Swiss franc over the next six months. The U.S. risk-free rate is 2.6 percent, and the Swiss risk-free rate is 1.0 percent. Assume that interest rates are expected to remain fixed over the near future. The current USD/CHF rate is 1.1058. Calculate the price at which the U.S. Company could enter into a forward USD/CHF contract that expires in 180 days (X.XXXX)