A US firm's expected AccountsReceivables in Switzerland due in 1yearCurrent Spot Rate (SR) for CHFAnnual interest rate in US (Rh)Annual interest rate in Switzerland (Rf) 2%CHF 10,000,000USD 0.805%If the firm uses money market hedge, one year from now, their accounts receivables will fetch them:O CHF 9,803,922O USD 8,000,000O USD 8,235,294O CHF 7,843,137

First, we need to calculate the present value of the receivables in CHF. This is done by dividing…

Answered: A US firm's expected Accounts…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Annual interest rate on 90-day U.S. asset is 4%, annual interest rate on 90-day UK asset is 8%, and the spot rate is $1=1,000 pound a) If you expect the spot rate to be $1=1075 after three months, where do you invest? b) If you also expect the U.S. interest rate to increase to 5% in 90 days, where do you invest?
Bank A expects the New Zealand dollar (NZ$) is going to appreciate in the next five days from $0.48 to $0.50, and the following annual interest rates are: Currency Lending Rate Borrowing Rate Dollars 7.10% 7.50% New Zealand dollar (NZ$) 6.80% 7.25% Bank A has the capacity to borrow either NZ$10 million or $5 million. If the bank's expectation is correct, the dollar profit can be generated over the five-day period is ___________. A. $134,862 B. $491,225 C. $503,320 D. $208,044
Finance The practice of investing in a currency that offers the higher return on a covered basis is known as covered interest arbitrage. Currently, the six month Euro Libor rate is -0.52% per annum, and the six month TR libor rate is 18.06% per annum. If the spot rate is 8.5013TRY per Euro and the forward rates are as stated below, Forward Points EURTRY 1M FWD 1003 EURTRY 3M FWD 3411 EURTRY 6M FWD 7096 EURTRY 1Y FWD 14507 a) What is 6M Forward rate for euro? b) Do you have a covered interest arbitrage opportunity? c) If yes, how? d) How much is the arbitrage amount you can enjoy if you can borrow upto 1 million euros or its equivalent Turkish Lira?
Please use this information to answer the question below: A US firm's expected Accounts Payable in Canada due in 1 year CAD 20,000,000 USD 0.65 Current Spot Rate (SR) for CAN Annual interest rate in US (Rh) 5% Annual interest rate in Canada (Rf) 3% If the firm Uses money market hedge, one year from now, their accounts payable will cost them
Do 2
Question 2 You have the opportunity to store your hard-earned money in a French or a Japanese bank account. The Japanese bank account promises an interest rate of 2% a year. If you deposit 1000 Euro in the French bank account, interests will accrue so that you will have 1105 Euros in two years. Today's exchange rate is 1 Euro to 129.60 Yen. a) What should the 1-year forward exchange rate be for you to be indifferent between the two accounts? Make sure you explain what theories justify your calculations b) If the yearly inflation rate for France is 4%, what do you expect the Japanese inflation to be?
The current spot rate is $0.80/A$ and the six-month forward rate is $0.7775/A$. One-year interest is 8% in the United States and 9% in Australia. An investor can borrow up to $ 500,000 or A$625,000, the dollar equivalent at the spot rate. a) Determine if IRP is holding between Australia (A$) and USA ($) b) If IRP does not exist, explain briefly how an investor would realize certain arbitrage profit in U.S. dollar terms. c) Explain (briefly) how IRP will be restored as a result of the arbitrage transactions investors carry out above. (Hint to answer : As more investors buy _____(A$ or $) at spot price, _____(A$ or $) will appreciate and hence, the spot price $0.80/A$ will increase so that the interest rate parity is restored.)
QUESTION 3 (a) KL Co. will be paying USD100,000.00 in 60 days. Assume the following interest rates: U.S. Malaysia 360-day borrowing rate 360-day deposit rate 7% 6% 5% 4% Assume the forward rate of the USD is RM4.20 and the spot rate of the USD is RM4.15. If KL Co. uses a money market hedge, how much will KL Co. be paying in 60 days?
Y2
Assume the following information: Current spot rate of New Zealand dollar = $.41 Forecasted spot rate of New Zealand dollar six months from now = $.43 Six month forward rate of the New Zealand dollar = $.44 Six month interest rate on New Zealand dollars (annual rate) = 8% Six month interest rate on U.S. dollars (annual rate) = 9% What are the potential profits in USD or NZD from interest rate arbitrage if you can start with 1,000,000 USD or 1,000,000 NZD? a. 13.27% b. 58340.20 NZD c. 5.87% d. $115,271

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