Due to your export to Thailand, you have an account receivable in six months from today in the amount of 525.00 million in Thai Baht (TB). The data that you have compiled are below. In addition, you are told that for simplicity you should assume that the interest rate in each country is the same for borrowing or lending. You would like to hedge the foreign exposure of this account. Thai Baht (TB) is the currency of Thailand. Spot rate: TB 32.72/$ • Forward rate (six months): TB 34.30/$ • U.S. prime rate: 3.2 percent (borrowing or lending). Prime rate is an interest rate. • Thailand interest rate: 6.0 percent (borrowing or lending) • The firm borrows and invests at the market rates. Answer questions 1 through 6 based on the above information. If you choose to do nothing (=do not hedge), the dollar outcome at the end of the six months is: 16.0452 million 15.3061 million Unknown 15.6291 million 17178.0 million

Due to your export to Thailand, you have an account receivable in six months from today in the amount of 525.00 million in Thai Baht (TB). The data that you have compiled are below. In addition, you are told that for simplicity you should assume that the interest rate in each country is the same for borrowing or lending. You would like to hedge the foreign exposure of this account. Thai Baht (TB) is the currency of Thailand. Spot rate: TB 32.72/$ • Forward rate (six months): TB 34.30/$ • U.S. prime rate: 3.2 percent (borrowing or lending). Prime rate is an interest rate. • Thailand interest rate: 6.0 percent (borrowing or lending) • The firm borrows and invests at the market rates. Answer questions 1 through 6 based on the above information. If you choose to do nothing (=do not hedge), the dollar outcome at the end of the six months is: 16.0452 million 15.3061 million Unknown 15.6291 million 17178.0 million

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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James Clark is a currency trader with Wachovia. He notices the following quotes: Spot exchange rate SFr1.2070 per $ Six-month forward exchange rate SFr1.1941 per $ Six-month Dollar interest rate 2.5% per year Six-month Swiss franc interest rate 2.0% per year Required: Is the interest rate parity holding? You may ignore transaction costs. What steps should be taken to make arbitrage profit? Assuming that James Clark is authorized to work with $1,000,000. Compute the arbitrage profit.
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 (NZS) 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$1.9114 per $ 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 intermediate…
A currency dealer can borrow $1,110,000 (or the equivalent in euros) for one year. The one-year interest rate is 2.90% in the U.S. and 6.20% in the euro zone. The spot exchange rate is $1.3993/€1.00 and the one-year forward exchange rate is $1.3368/€1.00. What arbitrage profit results if the trader borrows the maximum available funds? €62,635.70 OR $83,731.40 €36,630.00 OR $48,966.98 €18,585.78 OR $24,845.47 €78,920.98 OR $105,501.57 €11,985.50 OR $16,022.22 €16,022.22 OR $21,418.50
A U.S. investor can borrow 1,000,000 or 500,000 GBP. The spot rate is $2.00/GBP, the one year forward rate is $2.02/GBP. The U.S. one year interest rate is 14% and the one year British interest rate is 12%. Determine if there is a covered interest rate arbitrage opportunity, and if so, clearly show each step involved in the arbitrage opportunity. Show the total dollar profit. If you determined that there is no arbitrage opportunity, describe why you made that decision.
You are a Canadian exporter expecting a payment of USD 1M in three months. You want to hedge your currency risk. After looking at prevailing interest rates and exchange rates, you decide to hedge forward. Ignoring transactions costs, must US exporters expecting payment in Canadian dollars wish to hedge forward or spot?
Suppose that Denver Financial Co. expects the exchange rate of the New Zealand dollar (NZ$) to depreciate from its current level of 0.5 to 0.45 in 30 days. Denver Financial seeks to capitalize on this potential opportunity. Suppose that Denver Financial begins by borrowing NZ$50,000,000 and converting it to U.S. dollars. The following table shows the short-term interest rates (annualized) in the interbank market. Currency U.S. Dollars New Zealand Dollars (NZ$) investment. Lending Rate Borrowing rate (Adjusted for 30-day period) (Adjusted for 30-day period) 6.72% 6.48% In the previous stages of this problem, you found that Denver Financial initially borrowed funds and must repay the equivalent of $22,630,500.00 after 30-days. However, using those funds, Denver Financial was able to secure $25,140,000.00 after 30-days (principal plus interest) due to their Thus, Denver's speculative profit is 7.20% 6.96% (U.S. dollars).
Suppose you conduct currency carry trade by borrowing $1,000,000 at the start of each year and investing in the New Zealand dollar for one year. One-year interest rates and the exchange rate between the U.S. dollar ($) and New Zealand dollar (NZ$) are provided below for the period 2000-2009. Note that interest rates are one-year interbank rates on January 1 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$1.9110/S on January 1, 2000. Fill out columns 4-7 and compute the total dollar profit from this carry trade over the 10-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. Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 INZS(%) 6.75 6.92 5.13 6.16 6.10 6.89 7.50 8.25 9.32 5.32 ig (%) 6.61 6.11 2.55 1:56 1.57 3.21 4.95 5.44 4.33 2.11 SNZ1/1 2.2621…
Suppose that California Co., a U.S. based MNC, seeks to capitalize a difference in interest rates between euros and British pounds via the use of a carry trade. In particular, after 1 month, funds invested in euros will yield a 0.50% percent return, while funds invested in pounds will yield a return of 2.00% percent. Currently the spot rate of the British pound is $1.00 while the spot rate of the euro is $0.80. In other words, the pound is worth 1.25 euros. California Co. expects these spot rates to remain constant over the next month. After repaying their euro loan, California Co. has 211,200 pounds remaining. Assume that the exchange rate is still $1.00 per pound. These pounds are equivalent to $ , which represents a profit of $ over the initial $200,000 that California Co. used from their own funds.
James Clark is a foreign exchange trader with Citibank. He notices the following quotes. Spot exchange rate Six-month forward exchange rate Six-month $ interest rate Six-month SFr interest rate USD1.2051/SFr USD1.1922/SFr 8% per year 10% per year Is there an arbitrage opportunity? If yes, determine the arbitrage profit in Swiss Francs. Assume that James Clark is authorized to work with $1,000,000. Input your answer without any currency information.
Suppose that California Co., a U.S. based MNC, seeks to capitalize a difference in interest rates between euros and British pounds via the use of a carry trade. In particular, after 1 month, funds invested in euros will yield a 0.50% percent return, while funds invested in pounds will yield a return of 2.00% percent. Currently the spot rate of the British pound is $1.00 while the spot rate of the euro is $0.80. In other words, the pound is worth 1.25 euros. California Co. expects these spot rates to remain constant over the next month. After 1 month, California Co. now has 693,600 pounds after investing their converted pounds. However, it is now time for California Co. to repay the 600,000 euro loan. If California Co. borrowed these euros at the prevailing rate of 0.50% percent, they must repay a total of rate of 1.25, this repayment is equivalent to pounds. euros. At the cross pounds. Thus, after repaying the loan, California Co. will have
The treasurer of a major U.S. firm has $31276878 to invest for three months. The annual interest rate in the United States is 0.35% per month. The interest rate in Great Britain is 0.59% per month. The spot exchange rate is £0.72, and the three-month forward rate is £0.74. Ignoring transaction costs, what would be the NPV of investing in Great Britain as opposed to invest in the U.S.? NOTE: Enter the number rounding to four decimal places
I would appreciate it if this was done in excel please A US bank converts $ 1 million to SF to make an SF loan to a valued customer when the exchange rate was 1.53 SF per USD. The borrower agrees to repay the principal plus 6.25% interest in one year. The borrower repaid SF at loan maturity and when the loan was repaid the exchange rate was 1.63 SF per USD. What was the bank's dollar rate of return?

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