Assume that the yen/dollar exchange rate quoted in Tokyo at 5 p.m. is ¥120 = $1, and the New York yen/dollar exchange rate at the same time (noon New York time) is ¥123= $1. What action should a broker take to yield immediate profit? forward exchange currency speculation currency swap arbitrage

Assume that the yen/dollar exchange rate quoted in Tokyo at 5 p.m. is ¥120 = $1, and the New York yen/dollar exchange rate at the same time (noon New York time) is ¥123= $1. What action should a broker take to yield immediate profit? forward exchange currency speculation currency swap arbitrage

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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Which of the following best describes the terms 'long forward position' and 'short forward position' in foreign exchange trading? A short forward position is holding a currency for a short duration, while a long forward position is holding it for a longer period. A short forward position means you have agreed to sell a currency in the future, while a long forward position means you have agreed to buy it in the future. A long forward position is when you expect the currency's future spot rate to decrease, and a short forward position is when you expect it to increase. A long forward position means you have agreed to sell a currency in the future, and a short forward position means you have agreed to buy it in the future.
a) Assume the following information: 180‑day U.S. interest rate = 8% 180‑day British interest rate = 9% 180‑day forward rate of British pound = $1.50 Spot rate of British pound = $1.48 Assume that a U.S. exporter will receive 400,000 pounds in 180 days. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated revenue for each type of hedge. b) As treasurer of a U.S. exporter to Canada, you must decide how to hedge (if at all) future receivables of 250,000 Canadian dollars 90 days from now. Put options are available for a premium of $.03 per unit and an exercise price of $.80 per Canadian dollar (CA$). The forecasted spot rate of the CA$ in 90 days follows: Future Spot Rate Probability (%) $.75 50…
D3)
Suppose the Japanese yen exchange rate is ¥122 = $1 and the British pound exchange rate is £1 = $1.53. Suppose the cross-rate is ¥140 = £1. If there is, what would be the profit of the mispricing?
Suppose that in the Moscow interbank market one ruble corresponds to 0.0135 euros and 1.5 yen, while in the Tokyo interbank market 100 yen equals 0.8 euros. Consider whether there is a possibility of Triangular Arbitrage.
Suppose that the interest rate on a US dollar deposit is 3% and the interest rate on a Japanese yen deposit is 1%. Today’s exchange rate is $1/¥ and the expected rate one year in the future is $1.2/¥, so $100 today can be exchanges for ¥100. Which currency deposit yield a higher expected rate of return (which currency investors should be willing to hold)? Why?
Consider the following table. There are two countries and two goods. Assume both countries have the same price table: Time t t+1 P1 $8 $10 P2 $4 $5 a. Assume commodity price parity. What is the foreign currency price of the two goods at the two points in time? What is the domestic inflation rate? What is the foreign inflation rate. b. Suppose PPP is known to hold as is covered interest parity between two countries. What determines any differences between the expected real returns on risk free interest bearing assets in the two countries?
someone help me understand what to do
Use the information below to answer the following questions. Currency per U.S. $ 1.2380 1.2353 Australia dollar 6-months forward Japan Yen 6-months forward U.K. Pound 6-months forward 100.3600 100.0200 .6789 .6784 Suppose interest rate parity holds, and the current six month risk-free rate in the United States is 5 percent. Use the approximate interest rate parity equation to answer the following questions. a. What must the six-month risk-free rate be in Australia? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What must the six-month risk-free rate be in Japan? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Australian risk-free rate b. Japanese risk-free rate c. Great Britain risk-free rate c. What must the six-month risk-free rate be in Great Britain? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % % %
Suppose quotes for the dollar–euro exchange rate E$/€ are as follows: in New York $1.05 per euro, and in Tokyo $1.15 per euro. Describe how investors use arbitrage to take advantage of the difference in exchange rates. Explain how this process will affect the dollar price of the euro in New York and Tokyo.
please help me figure out step by step how to ca;culate and find the answer
b) Complete the following sentences based on your readings on International Financial Management. (One term may be used more than once) i. ii. iii. Suppose the spot exchange rate is 2 US dollars per British pound. The forward exchange rate is 0.5263 pound per dollar. The pound is selling at a forward Investing in a financial instrument other than one's home currency and locking in the proceeds through the forward rate is called states that difference between the forward and spot exchange rates is related to the interest rate differential between the currencies.

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