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- Assume UK one-year
money market interest rate is 8%. A Ghanaian firm is planning to borrow British pounds, convert them into cedi and repay the loan at the end of one year. Available information is that the cedi currency willdepreciate by 21% against the pound sterling by the time of payment of the loan. Determine the effective financing cost of borrowing the British pound. Will you finance with a local loan costing 28% per annum or the pound sterling loan?
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- 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 DKK14,600,000 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. Present value of the benefit of the concessionary loanZeda Inc., a U.S. MNC, is considering making a fixed direct investment in Denmark. The Danish government has offered Zeda a concessionary loan of DKK 14,400,000 at a rate of 4 percent per annum. The normal borrowing rate for Zeda is 6 percent in dollars and 5.5 percent in Danish krone. The load schedule calls for the principal to be repaid in three equal annual installments. The current spot rate is DKK5.60/$1.00 and the expected inflation rate is 3 percent in the United States and 2.5 percent in Denmark. What is the present value of the benefit of the concessionary loan?Bing Ltd a UK based company is due to pay 80 million Lira to Google Ltd. The spot rate is Lira 2,400/£. Interest rates for the next year are expected to be 8% in the UK and 20% in Italy. Required: Assume the International Fisher Effect is valid, evaluate the effect on the sterling cost of this transaction if Bing Ltd delay payments by one year.
- You are an American investor who can borrow $1,000,000 or the equivalent amount in euros today. Suppose the spot rate is $1.18/€, and the one-year forward rate is $1.15/€. The annual interest rate is 4 percent in the U.S. and 2 percent in Germany. Check if IRP holds. If it does not hold, set up a covered interest arbitrage. What will be your profit from this arbitrage opportunity in dollars?A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 13% interest. Assuming capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero. Select one: a. 7% b. 6.6% C. 6.2% d. 5.4%Sun Bank USA has purchased a 8 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.625/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.588/A$1 and $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whole number. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $200,000 (disregarding any change in principal values)?…
- Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.715/A$1 and $1.520/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars. Round your final answer to the nearest whole dollar. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest…Suppose that Denver Financial Co. expects the exchange rate of the New Zealand dollar (NZ$) 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$50,000,000 and converting it to U.S. dollars. The following table shows the short-term interest rates (annualized) in the interbank market. Currency Lending Rate Borrowing rate (Adjusted for 30-day period) (Adjusted for 30-day period) U.S. Dollars 6.72% 7.20% New Zealand Dollars (NZ$) 6.48% 6.96% After exchanging $50,000,000 to dollars, Denver Financial will haveBank A expects the New Zealand dollar (NZ$) 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
- 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 850,918Suppose that the current spot exchange rate is €0.830/S and the three-month forward exchange rate is €o.815/S. The three-month interest rate is 6.00 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or €830,000. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine the size of your arbitrage profit.An American firm wants to borrow 100 million USD for 1 year to fund a capital investment project. The firm can borrow the money from a U.S. bank at an interest rate of 6%. Alternatively, the firm could borrow British pounds at a rate of 3% a year. At the end of the year, the firm would pay back the loan and interest. The initial exchange rate is 1 GBP = 2 USD. If at the end of the year the exchange rate changes from 1 GBP = 2 USD to 1 GBP = 3 USD, what was the actual cost of borrowing (effective interest rate) if the American firm chose to obtain the loan in British pounds?
