Greenland and Brownland are two countries which regularly trade with each other. The current exchange rate is 1 Green = 3 Brown. Wetland, is a third country which also has trade relations with Greenland and Brownland. If interest rates Wetland and Greenland increase, while interest rates in Brownland remain constant, what would happen the current exchange rate between Greenland and Brownland. Select one: a. Exchange rate will move from 1 Green = 3 Brown towards 1 Green = 4 Brown O b. No Change c. Exchange rate will move from 1 Green = 3 Brown towards 1 Green = 2 Brown

Greenland and Brownland are two countries which regularly trade with each other. The current exchange rate is 1 Green = 3 Brown. Wetland, is a third country which also has trade relations with Greenland and Brownland. If interest rates Wetland and Greenland increase, while interest rates in Brownland remain constant, what would happen the current exchange rate between Greenland and Brownland. Select one: a. Exchange rate will move from 1 Green = 3 Brown towards 1 Green = 4 Brown O b. No Change c. Exchange rate will move from 1 Green = 3 Brown towards 1 Green = 2 Brown

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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"The spot exchange rate for Brazilian Real is Real4.1/$, while the 9 months forward exchange rate is Real4.5/$. This implies that" Owe cannot make any conclusions about the interest rates in US and Brazil based on the given numbers the 9-months risk-free interest rate in US is lower than that in Brazil the 9-months risk-free interest rate in US is the same as that in Brazil the 9-months risk-free interest rate in US is higher than that in Brazil
An investor based in the US invests $1,200 in Mexico and this generates a future value in one year of $1,344.44, US. If the interest rate in Mexico is 10% and the future expected exchange rate is Et41 = 5.4, this implies that the current exchange rate must be O 5.25 O 5.7 O 4.85 O 5.5
The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A scanner sells for $65.45 in the United States. The exchange rate between the U.S. dollar and the Swiss franc (SFr) is $0.8245 per Swiss franc. Suppose the price of the scanner in Switzerland was actually SFr 63.50. Assuming no transaction costs, transportation costs, or import restrictions, PPP predicts that the demand would (decrease or Increase) in Switzerland.
Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and that the spot exchange rate is $1.12/€ and the one-year forward exchange rate, is $1.16/€. Assume that al of these rates will be used and a speculator can borrow $1,000,000 or €1,000,000. This is an example whether Uncovered Interest Arbitrage is possible O This is an example of whether Purchasing Power Parity holds This is an example whether fisher effect holds O None of the above This is an example whether Covered Interest Arbitrage is possible
Assume your firm has transferred you to Zurich Switzerland. You work in the triangular arbitrage division. View the following exchange rates. Is an arbitrage opportunity available? If not, explain why an opportunity does not exist. If so, from the Swiss point of view show how to exploit the opportunity. CHF .8976 = $1.00, $.0130 = INR 1.00, INR 92.7904 = CHF 1 Now say instead of working in Zurich, you were employed in Mumbai, India. How does that change your thinking on the arbitrage? PLEASE ANWSER CORRECTLY AND SHOW WORK
You are given the exchange rate between the U.S. dollar and the Canadian dollar. You are also given the exchange rate between the U.S. dollar and the Mexican peso. What is the name given to the Canadian dollar per Mexican peso exchange rate derived from the information that was provided? A. Swap rate B. Depositary rate C. Forward rate D. London Interbank rate E. Cross-rate
Analyse the scenario below. In each case, explain your reasoning Suppose that the current EUR/GBP exchange rate is £0.92 per euro. The current2-year interest rates are: GBP 4%, EUR 5%. Suppose further that you can use a 2-year forward contract with a EUR/GBP rate of £0.91 per euro. Could this contractbe used for an arbitrage opportunity? If yes, provide an example. Calculatearbitrage profit and explain how this profit can be earned
The one-year risk-free rate in the U.S. is 4.340 percent and the one-year risk-free rate in Mexico is 6.64 percent. The one-year forward rate between the Mexican peso and the U.S. dollar is MXN12.366/$. What is the spot exchange rate? Assume interest rate parity holds. Multiple Choice MXN13.969/$ MXN14.939/$ MXN12.366/$ MXN12.639/$ MXN12.099/$
3. Trading in foreign exchange What are spot rates and forward rates? Purple Whale Foodstuffs Inc., a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for ¥625 million, but the Japanese firm has 60 days before it must make the payment to Purple Whale Foodstuffs Inc. The spot exchange rate is ¥128.75 per dollar, and the 60-day forward rate is ¥133.45 per dollar. Is the yen selling at a premium or at a discount in the forward market relative to the U.S. dollar? The yen is trading at a discount in the forward market. In the forward market, the yen is trading at a premium. If the customer pays Purple Whale Foodstuffs Inc. the ¥625 million today, how much will Purple Whale Foodstuffs Inc. receive in dollars? O $4.85 million $5.34 million $5.09 million O $5.58 million Assuming that the forward market is correct and the spot exchange rate in 60 days will equal the 60-day forward exchange rate today, Purple Whale…
A6)

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