ISuppose you are a U.S. investor who is planning to invest $905,000 in Mexico. Your Mexican investment gains 11.2 percent. If theexchange rate moves from 13.4 pesos per dollar to 13.7 pesos per dollar over the period, what is your total return on this investment?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)Answer is complete but not entirely correct.79,322.91 %Total return

Return on investment is used to evaluate the profitability and performance of an investment relative…

Answered: I Suppose you are a U.S. investor who…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose a U.S. investor wishes to invest in a British firm currently selling for £64 per share. The investor has $12,800 to invest, and the current exchange rate is $2/£.Suppose now the investor also sells forward £6,400 at a forward exchange rate of $1.90/£. Required:a. Calculate the dollar-denominated returns for each scenario. (Round your percentage answers to 2 decimal places. Negative amounts should be indicated by a minus sign.)
Suppose the inflation rate in Canada is 1 percent and the inflation rate in Mexico is 3 percent. If the nominal exchange rate in terms of Mexican pesos per Canadian dollar falls by 4 percent, by how much will the real exchange rate (in terms of Mexican goods per Canadian good) change?
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. If California Co. takes $200,000 of its own funds and converts them to pounds it would have 600,000 euros and converts them to pounds, it will have pounds. pounds. If California Co. borrows
Suppose that 1 Danish krone could be purchased in the foreign exchange market today for $0.17. If the krone appreciated 7% tomorrow against the dollar, how many krones would a dollar buy tomorrow? Do not round intermediate calculations. Round your answer to four decimal places. ____ krones
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?
Consider this case: Sebrele Enterprises Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project: The project requires an investment of AU$915,000 today and is expected to generate cash flows of AU$900,000 at the end of each of the next two years. The current exchange rate of the U.S. dollar against the Australian dollar is $0.7823 per Australian dollar (AUS). The one-year forward exchange rate is $0.8102 / AU$, and the two-year forward exchange rate is $0.8412 / AU$. The firm's weighted average cost of capital (WACC) is 9.5%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? $610,602 $726,908 $581,526 $639,679
Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2/£. a. How many shares can the investor purchase? Number of shares = b. Fill in the table below for rates of return after one year in each of the nine scenarios (three possible prices per share in pounds times three possible exchange rates). (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Price per Share (£) Pound-Denominated Return (%) Dollar-Denominated Return (%)for Year-End Exchange Rate $1.80/£ $2/£ $2.20/£ £35 % % % % % % £40 % % % % % % £45 % % % % % %
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 = $1. The current interest rate on one-year U.S. Treasury bills is 6%, and on one-year Japanese government bonds the interest rate is 4%. a. If Halliburton exchanges dollars for yen today and invests the yen in Japan for one year, it will need to exchange today in order to have ¥250 million in one year. (Round your response to the nearest dollar)
Suppose that Denver Financial Co. expects the exchange rate of the New Zealand dollar (NZ$) 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 have
In June 2010, an investor is considering investing in bank deposits in Korea and Japan. Theannual interest rate on Korean deposits is 6.25%, versus 3.75% on deposits in Japan. Supposethat the forward rate (for June 2011) in June 2010 is equal to F(won/yen) = 8.2. In June 2010, theexpected exchange rate is 8.2 won/¥. For the remainder of this question, use the linearapproximations for uncovered and covered interest rate parity. The spot exchange rate in June2010 is E(won/yen) = 8 a. Does covered interest parity hold in this example?b. Does uncovered interest parity hold in this example?c. Suppose the exchange rate in June 2011 is equal to 7.472 won per yen. Calculate theinvestor’s actual return, assuming that he invests in Japanese deposits in June 2010.How do these answers compare with those from (b)?d. Consider two investors: one uses speculation and the other uses hedging. Based on yourprevious answers, which one earned a higher return (or smaller loss) on Japanese assetsbetween June…
Given the following information, take advantage of the triangular arbitrage opportunity and calculate the US dollar profit for an investment of $1,000,000. Keep at least two decimals in your calculations and round at the very end to enter your answer with no decimals (i.e, if your final answer is 9.98, you will enter 10). Singapore dollar in US dollars (USD/SGD) 0.73 US dollars in British pounds (GBP/USD) 0.83 Singapore dollar in British pounds (GBP/SGD) 0.71
Suppose 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.

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