Goodyear, a U.S. firm, sells tires to Airbus UK, and will receive payment of £1,000,000 in one year. Goodyear's bank quotes the information below: o The spot exchange rate is e$/£ = $1.50/£ o The 1-year interest rate on dollars is ius = 2.00% o The 1-year interest rate on pounds is iuK = 5.50% o The 1-year forward rate on pounds is fs/£ = $1.45/£ In addition, Goodyear contacts private forecasters in the market and concludes: o The 1-year-ahead expected exchange rate on the Pound is eex £ = $1.40/£

Goodyear, a U.S. firm, sells tires to Airbus UK, and will receive payment of £1,000,000 in one year. Goodyear's bank quotes the information below: o The spot exchange rate is e$/£ = $1.50/£ o The 1-year interest rate on dollars is ius = 2.00% o The 1-year interest rate on pounds is iuK = 5.50% o The 1-year forward rate on pounds is fs/£ = $1.45/£ In addition, Goodyear contacts private forecasters in the market and concludes: o The 1-year-ahead expected exchange rate on the Pound is eex £ = $1.40/£

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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Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €19 million which is payable in one year. The current EUR/USD rate is 1.0651 and the one-year forward rate is 1.0898. The annual interest rate is 4.9% in the U.S. and 2.7% in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. It is considering to hedge borrowing euros from Credit Lyonnaise against the euro receivable. How much will they receive in one year? (USD, no cents) The answer is 20,670,407 I cannot figure out how. Thanks!
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
Use the following information for Problems 11 and 12.MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply:MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706.Assuming that MNC entered into a forward contract to sell 10 million South Korean won on December 1, 2017, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2017 resulting from a fluctuation in the value of the won?a. No impact on net income.b. $58.80 decrease in net income.c. $2,000 decrease in net income.d. $1,941.20 increase in net income.
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 the U.S. firm Halliburton buys construction equipment from the Japanese firm Komatsu at a price of ¥250 million The equipment is to be delivered to the United States and paid for in one year. The current exchange rate is ¥96 = $1. The current interest rate on one-year U.S. Treasury bills is 6%, and on one-year Japanese government bonds the interest rate is 4%. a. If Halliburton exchanges dollars for yen today and invests the yen in Japan for one year, it will need to exchange today in order to have ¥250 million in one year. (Round your response to the nearest dollar)
You are US company, 500,000 BP (British Pound) payable to UK in one year. Answer in terms of US$. 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): 6% 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!)
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?
You are the Financial Manager of Walmart in U.S. and Walmart has recently started exporting food products to an Australian company, Woolworths. The exports are currently invoiced in Australian dollars (AUD). Suppose further that Walmart shipped an order to Woolworths invoiced at AUD100 million at the end of 2018. Walmart expects payment in a year's time. Suppose that the spot exchange rate at the end of 2018 was AUD1.3036/USD and that the mean and standard deviation of the AUD/USD historical percentage changes are u=0.28% and o=9.95%, respectively. What are the conditional mean and conditional volatility of the future spot AUD/USD exchange rate in a year's time? OConditional mean AUDO.365/USD, and conditional volatility AUDO.14/USD O Conditional mean AUD1.3073/USD, and conditional volatility AUD13/USD Conditional mean AUD1.3073/USD, and conditional volatility AUDO.13/USD Conditional mean AUDO.004/USD, and conditional volatility AUDO.78/USD
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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