Arbitrage funds available = $6,000,500; Spot exchange rate (Kr/$) = 6.1430; 3-month forward rate (Kr/$) = 6.1720; US dollar 3-month interest rate = 3.100% per annum; Danish kroner 3-month interest rate 5.100% per annum. %3D You can invest $6,000,500, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Using the above quotes, how much is the covered interest arbitrage profit? A) Kr58,690.96 B) $58,690.96 C) Kri,448.84 D) $1,448.84

Arbitrage funds available = $6,000,500; Spot exchange rate (Kr/$) = 6.1430; 3-month forward rate (Kr/$) = 6.1720; US dollar 3-month interest rate = 3.100% per annum; Danish kroner 3-month interest rate 5.100% per annum. %3D You can invest $6,000,500, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Using the above quotes, how much is the covered interest arbitrage profit? A) Kr58,690.96 B) $58,690.96 C) Kri,448.84 D) $1,448.84

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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Similar questions

A UK company owes an American company $100,000 due to be paid in three months. The company wishes to avoid exchange rate risk, so borrows enough in sterling now and converts it immediately to dollars which are invested to bring in the required amount in three months' time. The following information is available: Spot rate $/£ 1.7755 - 1.7765 3-month interest rates: Sterling 3.250% US dollar 2.425% How much will the UK company have to borrow now to clear the debt in three months? A. £54,958 B. £54,989 £56,744 D. £56,775 C.
You are US company, 500,000 BP (British Pound) payable to UK in one year. Answer in terms of US$. Information for Forward Contract: Forward exchange rate (one yr): 1.54 $/BP Information for Money Market Instruments (MMI): Current exchange rate: 1.50 $/BP Investment return at Aerion Fund Management (in UK): 4% annual Interest rate of borrowing from Bank of America (in USA): 2% annual Information you need for Currency Options Contract: Options premium: 0.015 $/BP Interest rate of borrowing from Bank of America (USA): 2% annual Allowed to exercise options at 1.54 $/BP What are the costs of MMI? (Answer in US$ of course. You are US company!) Group of answer choices None of the above $789,343 $735,504 $770,082 $783,452
None
Required: Zeda Incorporated, a U.S. MNC, is considering making a fixed direct Investment In Denmark. The Danish government has offered Zeda a concessionary loan of DKK14,150,000 at a rate of 4 percent per annum. The normal borrowing rate is 6 percent in dollars and 5.5 percent in Danish krone. The loan schedule calls for the principal to be repaid in three equal annual Installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK 5.60 per $1.00 and the expected inflation rate is 3 percent In the United States and 2.5 percent in Denmark. Note: Round the exchange rates to two decimal places. Round the Intermediate calculations and final answer to nearest whole number. Answer is complete but not entirely correct. Present value of the benefit of the concessionary loan S 850,918
Company A (a U.S. MNC) wants to borrow £10,000,000 at a fixed rate for five year. Company B (a U.K. MNC) wants to borrow $16,000,000 at a fixed rate for five year. Today's exchange rate is £1- $1.6. The information below summarizes what each company can do without using swaps. Company A Company B $ Loans 8 10.6 £ Loans 11.6 12.4 If Company A wants to save 0.3% of the £10,000,000 loan through a Swap Bank, and If Company B wants to save 0.2% of the $16,000,000 loan through a Swap Bank. How much can the Swap bank earn on pound (£) loans (in terms of %) after meeting Company A and Company B's demand? (if your answer is 1.34%, just enter "1.34". If your answer is -1.34%, just enter"-1.34").
You are US company, 500,000 BP (British Pound) payable to UK in one year. Answer in terms of US$. Information for Forward Contract: Forward exchange rate (one yr): 1.54 $/BP Information for Money Market Instruments (MMI): Current exchange rate: 1.50 $/BP Investment return at Aerion Fund Management (in UK): 6% annual Interest rate of borrowing from Bank of America (in USA): 2% annual Information you need for Currency Options Contract: Options premium: 0.015 $/BP Interest rate of borrowing from Bank of America (USA): 2% annual Allowed to exercise options at 1.54 $/BP What are the costs of MMI? (Answer in US$ of course. You are US company!)
Goodyear, a U.S. firm, sells tires to Airbus UK, and will receive payment of £1,000,000 in one year. Goodyear's bank quotes the information below: o The spot exchange rate is o The 1-year interest rate on dollars is ius = 2.00% e$/£ $1.50/£ %3D o The 1-year interest rate on pounds is iUK = 5.50% o The 1-year forward rate on pounds is fs/£ = $1.45/£ %3D In addition, Goodyear contacts private forecasters in the market and concludes: o The 1-year-ahead expected exchange rate on the Pound is eex £ = $1.40/£

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