If a country can give up one unit of future consumption and as result increase its current consumption by 0.94 units, its real rate of interest must be: (a) 1.4% (b) 3.4% (c) 6.4% (d) 9.4%
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- Let in and if represent the nominal 1-year interest rates for a home and foreign country, respectively. According to the international Fisher effect (IFE) theory, which of the following best represents the predicted change in the foreign currency ef? O ○ ef = ef = 1-in 1-i 1+if 1+i - - 1 1 ○ ef 1+in ○ ef = +1 1+i ○ ef = 1+in 1+if - 1Assume a risk-free asset in the U.S. is currently yielding 2.7 percent while a Canadian risk-free asset is yielding 2.8 percent and the current spot rate is Can$1.2849 = $1. What is the approximate 6-month forward rate if interest rate parity holds? Can$1.2855 Can$1.2838 Can$1.2843 Can$1.2862 Can$1.2836Using the UIP equation, assume that the expected future rate (after one year) for euros (in terms of dollars) equals $1.20, while the current spot rate is 1.15. The current interest rate on euro deposits is 2%, and the interest rate on dollar deposits is 3%. Should you invest in the US or in Europe? Neither one In the US In Europe It is indifferent
- Assume the following information: Spot rate of Mexican peso $0.100 1-year forward rate of Mexican peso $0.099 1-year Mexican interest rate 6% 1-year U.S. interest rate 5% 1. Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1,000,000.) 2. What market forces would occur to eliminate any further possibilities of covered interest arbitrage?Assume that the Australian dollar's spot rate is $1.25 and that the Australian and U.S 1 year interest rates are initially 8%. Then assume that the Australian 1-year interest rate increases by 5% points, while the U.S 1 year's interest rate remains unchanged. Using this information and the international fisher effect (IFE) theory, forecast the spot rate for 1 year ahead. (a) $2.33 (b) $1.19 (c) $4.67 (d) $6.78Which net present value, payback period, and interal rate of return is the best to choose. (A). 898613.67 (NPV); 4.625 years (payback period); 17.48% per year (B) 1407172.81 (NPV); 2.778 years (payback period); 30.93% per year (C) 1487140.50 (NPV); 3.00 years (payback period); 32.06% per year
- Assume that spot rate of New Zealand dollar is AUD 0.64/NZD, the 1-year forward rate of New Zealand dollar is AUD 0.62/NZD, 1-year interest rate on NZD is 9% and 1-year interest rate on AUD is 6%. If there is a possible arbitrage opportunity, the appropriate arbitrage strategy should be and the rate of return from covered interest arbitrage would be arbitrage; %. Select one: a. Inward; 0.38 b. Outward; 9.42 c. Inward; 9.42 d. Outward; 0.38Consider the following money market information being quoted: Which of the following statements is true? Particulars GBP Interest Rate THB Interest Rate Spot Rate 1-year Expected Spot Rate Bid Rate 6.100% 10.550% THB5.6601/GBP THB5.9037/GBP C. Ask Rate 6.125% 10.625% THB5.6622/GBP THB5.9961/GBP a. There is an arbitrage which can only be made by initially borrowing GBP and then investing in THB. b. More than one of the options in this question are correct. The THB is selling at a premium to the GBP in the future. O d. There is an arbitrage which can only be made by initially borrowing THB and then investing in GBP.Why is the optimal interest coverage ratio equal to 1 if taxes are the only imperfection?
- Suppose that one of the inducements provided by Taiwanto woo Xidex into setting up a local production facility is a10-year, $12.5 million loan at 8% interest. The principalis to be repaid at the end of the tenth year. The marketinterest rate on such a loan is about 15%. With a marginaltax rate of 40%, how much is this loan worth to Xidex?Consider the following situation. It costs $1.2900 to purchase £1 for immediate delivery. UK interest rates are 0.75% p.a. US interest rates are 1.5% p.a. What must be the 1 year forward rate at which you can purchase £ with $? Assume that there is no default risk, no transaction costs, no bid-ask spreads, etc. Provide your answer to 4 decimatplaces, for example, if you think the answer is 1.2900 $/£, enter '1.2900' Answer:Assume the current spot price on the Brazilian Real is $.455. The annual risk-free rate inthe US is 3.3% and in Brazil the risk-free rate is 2.5%. Assume both T-bills are risk-free. A.What should be the one year forward price of the Real?
