In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates Spot exchange rate: Yen 106/$ U.S. dollar interest rate per annum 10% Japanese Yen interest rate per annum 6% and told Ari that the company's financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates. If the financial analyst's prediction about the US dollar and Japanese Yen turned out to be true: b.1) What would the spot exchange rate (Yen/$) be in 90 days? b.2) Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realize in 90 days? If no, explain why.
I want the answer for question b) ( I have attached the image of the question as well )
Statoil, the national company in Norway, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is a Norwegian company, because it operates within the global oil market, it considers the U.S. dollar ($), rather than the Norwegian krone (Nok), as its functional currency. Ari Karlsen is a currency trading strategist for Statoil. Answer the following two independent questions a) and b):
|
Spot Exchange Rate |
Nok 6.0312/$ |
|
3-month forward rate |
Nok 6.0186/$ |
|
U.S. dollar 3-month interest rate |
5% |
|
Norwegian Krone 3-month interest rate |
4.45% |
Based on the above information, what hedging strategy shouldAri advise the CFO that works the best for Statoil? Explain why Ari should choose such a hedging strategy. How much U.S. dollar will Statoil receive at the end of 3 months by using this hedging strategy?
|
Spot exchange rate: |
Yen 106/$ |
|
U.S. dollar interest rate per annum |
10% |
|
Japanese Yen interest rate per annum |
6% |
and told Ari that the company’s financial analyst expected the Japanese Yen to
b.1) What would the spot exchange rate (Yen/$) be in 90 days?
b.2) Would Ari make a profit by borrowing 1 million US dollars and investing in the money markets?
If yes, how much profit would Ari realize in 90 days?
If no, explain why.
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