If one year forward rate is EUR2.1830/OMR and interest rate for EURO is 6% per annum and for OMR is 8% per annum. What should be spot exchange rate ifinterest rate parity holds and OMR is the Home currency?EUR2.14257/OMRUSD2.0819/OMRUSD2.22418/OMRNone of these

Spot Exchange Rate = Forward Exchange Rate x (1+ Foreign interest Rate) /(1+Home currency Interest…

If one year forward rate is EUR2.1830/OMR and interest rate for EURO is 6% per annum and for OMR is 8% per annum. What should be spot exchange rate it interest rate parity holds and OMR is the Home currency? EUR2.14257/OMR USD2.0819/OMR USD2.22418/OMR None of these

If one year forward rate is EUR2.1830/OMR and interest rate for EURO is 6% per annum and for OMR is 8% per annum. What should be spot exchange rate it interest rate parity holds and OMR is the Home currency? EUR2.14257/OMR USD2.0819/OMR USD2.22418/OMR None of these

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: Calculate the one year forward exchange rate using the direct method: Spot Rate $ 1.4830 / € U.S…

A: Under this condition arbitrage opportunity is available. Investors can take the money from US and…

Q: Please use the data below, to answer the following question. Interest rate in US (Rh): Interest rate…

A: Current spot rate for EUR (S0)$1.25Expected spot rate for EUR 1 year later (S1)$1.30Interest rate…

Q: Suppose the spot $/¥ exchange rate is 0.007, the I -year continuously compound dollar - denominated…

A: The forward exchange rate refers to a contract where the rate at which the currencies can be traded…

Q: TIPS FOR READING AN EXCHANGE RATE CHART: Read down the chart. For example, in column 1 it says the…

A: Depreciation of a currency means that the value of the currency with respect to the other decreases,…

Q: (c) If the one-year interest rate on a dollar denominated Treasury bill is 4.5% p.a. and that on a…

A: The interest rate parity indicates that the forward premium or discount on currency exchange should…

Q: Spot Exchange Rate between Jamaican Dollar and Euro: JMD/E: 16 3/8- 5/8 179.9298-182.0387 Interest…

A: Interest rate parity is based on concept that investment opportunities in two economies will always…

Q: 2. Take into account a two-year currency swap with semiannual payments. The US dollar is the local…

A: A. We need to use the term structures provided to determine the annualized fixed rates for the two…

Q: Answer all questions below. a) In December 2005, the spot exchange rate for the British Pound was…

A: Forward exchange rate Forward exchange rate is calculated considering the covered interest parity…

Q: How is the cost of hedging payable will be if a 90-day forward rate of the euro completely estimate…

A: If we are able to completely identify the future spot rate in 90 days from now, then the entity will…

Q: Assume that Canadian (domestic) interest rate is 6%. EU (foreign) interest rate is 3%. and the…

A: Concept. Interest rate parity theory defines relationship between interest rates and exchange rates…

Q: Currently, the spot exchange rate is $1.56 per £ and the three-month forward exchange rate is $1.58…

A: The objective of the question is to determine whether the interest rate parity (IRP) is currently…

Q: a) The current spot rate between the euro and dollar is €1.0963/$. The annual inflation rate in the…

A: Arbitrage theory is based on buying and selling the stock at the same time in different markets. It…

Q: The following are hypothetical exchange rates: 2 euros = 1 pound; $1 = 2 pounds. We can conclude…

A: In the given question, we have two foreign exchange rates1 pound = 2 euros1 dollar = 2 pounds

Q: Please use the data below to answer the following question. Expected annual inflation rate in the US…

A: Expected future exchange rate = Current exchange rate * ((1 + Inflation in the domestic country) /…

Q: Coffenicy CDEE RIN Pen CS Per USS Per EUR Canadian dollar (CS) U.S. dollar (USS) Euro (EUR) 1.00…

A: Particulars C $ US $ € Canadian $ 1 1.0889 1.3051 USA $ 0.9184 1 1.1986 Euro (EUR) 0.7662…

Q: Spot rate for the South African rand to Euro is, S0 = R10.2992/€. Interest rate in the Eurozone is…

A: Given: Spot rate (S0) = R10.2992/€ Euro interest rate = 10.95% South Africa interest rate = 2.12%

Q: Use the information below to answer the following question. Exchange Rate So($/ €) $ F360(S/€) S…

A: nterest rate parity (IRP) is an economic theory that suggests that the difference in interest rates…

Q: The one-year interest rate is 1.00% in the U.S. and 3.10% in Canada. The current exchange rate of…

A: Using 1 USA = CAD 1.37

Q: Use the information below to answer the following questions. Canada dollar 6-months forward Japan…

A: CanadaJapanGreat BritainSpot rate1.2375100.31000.6794Forward rate1.2358100.07000.6779Risk-free(Rf)…

Q: The exchange rate is $1.1752/€ Suppose you need €10,000. How many $? Suppose you have $5,000. How…

A: Exchange rate refers to the value of one currency in terms of another currency. It is the rate at…

Q: The Chinese Yuan is currently exchanged at 1 Chinese Yuan = 0.13 Euro. The Euro trades at a 3%…

A: Nominal interest rate is referred to as an interest rate, which is before taking the inflation rate…

Q: Please use the data below, to answer the following question. Interest rate in US (Rh): Interest rate…

A: Assume we have $100, we convert it into USD at spot rate.USD = 100 euros* $1.25USD= 125Invest the…

Q: Spot rate €1.2562/£; 1 month forward €1.2662/£ Which of the two currencies is trading at forward…

A: Forward contracts are derivative contracts. In these contracts, a specified price is locked in for a…

Q: The following current rates have been observed: Spot exchange rate: $1.25/SFr Expected future spot…

A: Interest rate perity is a forex management theory that establishes relationship between money market…

Q: TIPS FOR READING AN EXCHANGE RATE CHART: Read down the chart. For example, in column 1 it says the…

A: The foreign exchange rates: The foreign exchange rates refer to the trading of one currency for…

Q: If the spot exchange rate is yen120/€1 and the one year forward exchange rate is yen130/€1. Then the…

A: The foreign exchange market is a dynamic arena where currencies are traded. Two crucial rates in…

Q: D4) When a 2-year currency swap between U.S. Dollars and Currency X is created, the exchange rate is…

A: Cross-currency swaps are OTC derivatives in which two parties agree to exchange interest and…

Q: In January, the one year interest rate is 8.56% in the UK and 5.85% in the US. If the current…

A: Exchange rate is that which help in settlement of another country tradeing. It is that rate which…

Q: The spot exchange rate is $1.98/£. If the expected exchange rate in one year is $2.01/£, and the…

A: Here,Spot price = $1.98Forward price = $2.01U.S. Interest rate = 5%To Find:One-year British interest…

Q: Given exchange rates for two different times 0 and 1 in the following table. So Peso21/$ $1 Peso20/$…

Q: Currently, the spot exchange rate is $1.59 per £ and the three-month forward exchange rate is $1.61…

A: Here,Here,Spot Exchange Rate is $1.59 per £Three Month Forward Exchange Rate is $1.61 per £Three…

Q: In April 2018, the exchange rate between the U.S. Dollar and the euro is 1 euro = $ 1.21. If in the…

A: Compared to the US the inflation is lower in the euro it shows that the interest rate is greater in…

Q: Assume that a bank has assets located in Germany worth €150 million earning an average of 8 percent.…

A: Exchange rate:An exchange rate represents the rate at which one currency may be exchanged for…

Q: Suppose that the spot rate for the euro is $1.5400 and with a forward premium of 2.00%. Which of the…

A: Forward premium is the difference between the spot exchange rate of a currency and the forward…

Q: Spot Exchange Rate between Lao Kip and Euro: LAK/€:…

A: Exchange rate computes worth of one currency in terms of another currency. Movement in exchange rate…

Q: Suppose, the price of an euro changes to $1.25. How much is the new price of dollar in terms of…

A: Lets understand the basics.When tranasction happens in foreign currency then conversation of home…

Q: 6-month forward rate = €1.20/£ Euro-zone interest rate = 3% p.a. U.K. interest rate = 2% p.a. What…

A: Based on the interest rate parity the spot rate and forward rate should be in equilibrium with each…

Q: Assume that the one-year interest rate is 3% p.a. in the UK and 2% p.a. in the Euro area. Also,…

A: Step 1: Analyzing the Interest Rate Parity (IRP) TheoryAccording to the IRP theory, the forward…

Q: e one-year forward rate for the Swiss franc is SF1.1505/$. The spot rate is SF1.1626/$. The interest…

A: Based on the interest rate the spot rate and forward rate must be in equilibruim based on the…

Q: Is there any violation of CIP? (b) Calculate the covered margin (going short on the AUD). (c)…

A: Here the spot rate is lower than the forward rate, so the EUR is selling at a premium. The interest…

Q: Current exchange rate (Feb 15, 2018) is .0090 $/Yen. You speculate the exchange rate will be .0087…

A: The currency, which is going to be appreciated, should be short sold. In the given case, the current…

Q: If spot rate is USD 2.5968/OMR and interst rate for OMR is 5% per annum . One year forward exchange…

A: If interest rate parity exists than exchange rate should reflect change in interest rate and must be…

Concept explainers

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.

Question

If one year forward rate is EUR2.1830/OMR and interest rate for EURO is 6% per annum and for OMR is 8% per annum. What should be spot exchange rate if
interest rate parity holds and OMR is the Home currency?
EUR2.14257/OMR
USD2.0819/OMR
USD2.22418/OMR
None of these

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1 Interest Rate Parity Calculation of Spot Exchange Rate Formula

VIEW

Step 2 Answer to the Question

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

As of today, the spot exchange rate is €1.00 = $1.25 and the rates of inflation expected to prevail for the next three years in the U.S. is 2 percent and 3 percent in the euro zone. What spot exchange rate should prevail three years from now? Multiple Choice $1.00 €1.2623 €1.00 $1.2139 €1.00 $0.9903 €1.00 = $1.2379
Assume interest rate parity holds. The one-year risk-free rate in the U.S. is 3.38 percent and the one-year risk-free rate in Japan is 3.75 percent. The spot rate between the Japanese yen and the U.S. dollar is ¥112.65/$. What is the one-year forward exchange rate?
Spot Exchange Rate between Lao Kip and Euro: LAK/E: 13 5/8 – 718 1 318 – 12 11,360.9812-11,362.7857 Interest Rates: One-Year LAK One-Year € What are the quotations for the one-year LAK/€ forward exchange rate?
None
Step by step would be very helpful
Spot Exchange Rate between Jamaican Dollar and Euro: JMD/€: 179.9298-182.0387 Interest Rates: One-Year JMD 16 3/8 – 5/8 One-Year € 1 1/8 – 1/4What are the quotations for the one-year JMD/€ forward exchange rate?
On January 31, 2019 the exchange rate between the US dollar and the euro was 1.14 USD/EUR. At the end of 2014, it was at 1.23 USD/EUR. Couple of years ago, A Big Mac cost 3.54 USD in the US. The price in the Euro Area was 3.42 EUR. Exchange rate was 1.28 USD/1 EUR. c) If law of one price would be true how much should it cost in the Euro Area? d) If Big Mac prices are perfect for determining PPP, is the Euro in comparison to the USD overvalued or undervalued? For how much? e) What is a definition of a nominal exchange rate in the value notation? Write an example.
The dollar-euro exchange rate is $1.25 = €1.00 and the dollar-yen exchange rate is ¥100 = $1.00. What is the yen per euro cross rate? cross rate? €1.00 = ¥0.80 C1.00 = ¥125 €125 = ¥1.00 none of the options
Given exchange rates for two different times 0 and 1 in the following table. So Peso24/$ $1.29/€ ¥108/$ S1₁ Peso 18/$ $1.12/€ ¥114/$ The percentage change in the euro's exchange rates from time 0 to 1 is (Please keep at least two decimal places) %
Give typed solution only In January 2023, the exchange rate between Euro (€) and U.S. dollar ($) is $0.99/€.The nominal interest rate for the E.U. and U.S for the next 1-year period is 11%and 8%, respectively. Also, the real interest rate for the E.U. and U.S for the next1-year period is 5% and 6%, respectively. What would you forecast the exchangerate to be at around January 2024?
Assume the following information is available for the United States and Europe: Nominal interest rate Expected inflation Spot rate One-year forward rate a. Does IRP hold? IRP -Select- $ U.S. 4% 2% $ in this case. b. According to PPP, what is the expected spot rate of the euro in one year? Do not round intermediate calculations. Round your answer to three decimal places. EUROPE 6% 5% $1.13 $1.10 c. According to the IFE, what is the expected spot rate of the euro in one year? Do not round intermediate calculations. Round your answer to three decimal places. d. Reconcile your answers to parts (a) and (c). Parts a and c combined say that the forward rate premium or discount is [-Select- of the euro. ✓the expected percentage appreciation or depreciation
10