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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Given: ICAD/0.8USD Spot rate 3 month forward rate ICAD/0.79USD 90 Days interest rates Canada 4% USA2 2.5% With USD 2,000,000 borrowed in USA, can CIA (covered interest arbitrage) take place? If so, clearly show the steps.
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
Suppose that the current EUR/GBP rate is 0.6668 and the one-year forward exchange rate is 0.6742. The one-year interest rate is 1.8% in euros and 3.6% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount. Suppose you are a pound-based investor. Determine the profit/loss (in GBP, no cents) if you borrow locally and invest in Euros.
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Problem 6.13 Required: Suppose you conduct currency carry trade by borrowing $1 million at the start of each year and investing in the New Zealand dollar for one year. One-year interest rates and the exchange rate between the U.S. dollar ($) and New Zealand dollar (NZ$) are provided below for the period 2000 - 2009. Note that interest rates are one-year interbank rates on January 1st each year, and that the exchange rate is the amount of New Zealand dollar per U.S. dollar on December 31 each year. The exchange rate was NZ$1.9088/$ on January 1, 2000. Fill out columns (4) – (7) and compute the total dollar profits from this carry trade over the ten-year period. Also, assess the validity of uncovered interest rate parity based on your solution of this problem. You are encouraged to use the Excel spreadsheet software to tackle this problem. Note: Negative value should be entered with a minus sign. Enter profit value answers in dollars, rather than in millions of dollars. Do not round…
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
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Q6. A financial institution has borrowed a one-year $20 million Eurodollar deposit at an annual interest rate of 1.5 percent. It has invested these proceeds in one-year Euro (€) bonds at an annual rate of 2.5 percent after converting them at the current spot rate of €1.22/$. Both interest and principal are paid at the end of the year. What is the spread earned by the bank at the end of the year if the exchange rate remains at €1.22/$? a) 1.50 percent b) 2.50 percent c) 0.50 percent d) 1 percent e) 2.00 percent
Vicky Gomez, a foreign exchange trader at Wells Fargo, can invest $1M, or the foreign currency equivalent of the bank's short term funds, in an uncovered or covered interest arbitrage with the United Kingdom. Arbitrage funds available to invest: $1M( or the equivalent in pounds) Spot rate ($/Ł) : 1.9422 90-day forward exchange rate ($/Ł): 1.9150 Expected 90-day spot exchange rate ($/Ł): 1.8810 U.S. dollar 90-day interest rate: 2.000% U.K. pound 90-day interest rate: 5.900% A.Should Vicky make an covered investment in the UK? Show work and give answer. B. Shoudl Vicky make an uncovered investment in the UK? Show work and give answer.

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