Homework Help is Here – Start Your Trial Now!
Business
Finance
Exchange rate is currently $1.85 US per 1 British pound. Interest rate is 3% in the US and 4% in the UK. A bank is long a futures contract on 1,000,000 pounds with F= $1.8 million in one year. Write the expression for the present value of the bank’s long futures position, as a function of current spot exchange rate S   a. Value = 1,000,000 (1.8 - S (1.04/1.03)) / 1.03   b. Value = 1,000,000 (1.8 - S (1.03/1.04)) / 1.03   c. Value = 1,000,000 (S (1.03/1.04) – 1.8) / 1.03   d. Value = 1,000,000 (S (1.04/1.03) – 1.8) / 1.03

Exchange rate is currently $1.85 US per 1 British pound. Interest rate is 3% in the US and 4% in the UK. A bank is long a futures contract on 1,000,000 pounds with F= $1.8 million in one year. Write the expression for the present value of the bank’s long futures position, as a function of current spot exchange rate S   a. Value = 1,000,000 (1.8 - S (1.04/1.03)) / 1.03   b. Value = 1,000,000 (1.8 - S (1.03/1.04)) / 1.03   c. Value = 1,000,000 (S (1.03/1.04) – 1.8) / 1.03   d. Value = 1,000,000 (S (1.04/1.03) – 1.8) / 1.03

Essentials Of Investments
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
See similar textbooks
icon
Related questions
Question

Exchange rate is currently $1.85 US per 1 British pound. Interest rate is 3% in the US and 4% in the UK. A bank is long a futures contract on 1,000,000 pounds with F= $1.8 million in one year.

Write the expression for the present value of the bank’s long futures position, as a function of current spot exchange rate S

  a.

Value = 1,000,000 (1.8 - S (1.04/1.03)) / 1.03
  b.

Value = 1,000,000 (1.8 - S (1.03/1.04)) / 1.03
  c.

Value = 1,000,000 (S (1.03/1.04) – 1.8) / 1.03
  d.

Value = 1,000,000 (S (1.04/1.03) – 1.8) / 1.03
Expert Solution
steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Knowledge Booster
Treasury Market
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS