If the spot exchange rate is yen120/€1 and the one year forward exchange rate is yen130/€1. Then the euro is at a forward: Select one: a. O b. C. d. premium and the one-year European interest rate is lower than the one-year Japanese interest rate. discount and the one-year European interest rate is higher than the one-year Japanese interest rate. premium and the one-year European interest rate is higher than the one-year Japanese interest rate. discount and the one-year European interest rate is lower than the one-year Japanese interest rate.

If the spot exchange rate is yen120/€1 and the one year forward exchange rate is yen130/€1. Then the euro is at a forward: Select one: a. O b. C. d. premium and the one-year European interest rate is lower than the one-year Japanese interest rate. discount and the one-year European interest rate is higher than the one-year Japanese interest rate. premium and the one-year European interest rate is higher than the one-year Japanese interest rate. discount and the one-year European interest rate is lower than the one-year Japanese interest rate.

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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Today's spot exchange rate: 1 euro = $1.25.US interest rate (home interest rate) is 7%.EU interest rate (foreign interest rate) is 10%.a) If the IRP (Interest rate parity) holds, what should the forward exchange rate be today?b) Assume that today, you invest $500 in the EU market for one year and at the same time, enter a currency forward contract to sell euro in a year at the forward rate from part a). If today's spot exchange rate is: 1 euro=$1.32 instead of $1.25, show how much profits or losses you make next year.
If the real exchange rates between the USD and CAD, AUD, and BRL respectively are 1.20, 0.90, and 1.40 respectively with the percentage of trade between the US and Canada, US and Australia, and US and Brazil are 50%, 20%, and 30% respectively (assuming these are only countries on the planet!), what is the effective real exchange rate for the USD? Question options: a)0.9 b)1.4 c)1.2 d)1.0
Assume interest rate parity holds. The one-year risk-free rate in the U.S. is 4.98 percent and the one-year risk-free rate in Japan is 5.37 percent. The spot rate between the Japanese yen and the U.S. dollar is ¥116.85/$. What is the one-year forward exchange rate? Multiple Choice ¥117.28/$ ¥119.15/$ ¥120.12/$ ¥116.85/$ ¥116.42/$
Suppose you observe the following spot and forward exchange rates between the U.S. dollar ($) and the Canadian dollar (C$): Spot Exchange Rate One-Year Forward Exchange Rate Canadian dollar (U.S. dollar/Canadian dollar) 0.8842 0.9001 The current one-year interest rate on U.S. Treasury securities is 6.89%. If interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk? 4.75% 4.00% 5.00% 5.75%
Currently, the spot exchange rate is $0.80/A$ and the one-year forward exchange rate is $0.76/A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,250,000, which is equivalent to $1,000,000 at the current spot rate. Determine if IRP is holding between Australia and the United States. Yes O No
Question II: The premium of a 100-strike yen-denominated put on the euro is 8.763. The current exchange rate is 95 /c. What is the strike of the corresponding curo-denominated yen call, and what is its premium?
Nikul
If the Australian/US dollar exchange rate is 0.72 USD/AUD, US interest rates are 0.25% and Australian interest rates are 0.75% (both for 1 year), what should the 1-year forward USD/AUD exchange rate be?
Suppose the spot price of a euro in dollars is $0.932. The U.S. interest rate for 90 days is 6.875% and the euro rate for 90 days is 4.450%. All interest calculations are done as rate times (#days/360). a. What is the rate for a 90-day forward contract on the euro? b. Suppose the euro forward contract is currently quoted at $0.95. What type of transaction(s) should an arbitrageur conduct to take advantage of the apparent mispricing Only typed answer
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
The $/€ spot exchange rate is $1.10/€ and the 120-day forward discount rate for the euro is 20%. Find the 120-day forward exchange rate for the Euro. $1.027. $0.9600. $1.320. $1.173. $1.100.
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

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