Interest Rate ParityAssume that interest rate parity holds and that 90-day risk-free securities yield 4% in the UnitedStates and 4.3% in Germany. In the spot market, 1 euro equals $1.36.What is the 90-day forward rate? Do not round intermediate calculations. Round your answer to fourdecimal places.Is the 90-day forward rate trading at a premium or discount relative to the spot rate?The 90-day forward rate is trading at a premiumrelative to the spot rate.

90-day forward rate = Current Spot rate * (1 + United States interest rate) / (1 + Germany interest…

Answered: Interest Rate Parity Assume that…

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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The nominal rate of interest on six-month, risk-free Canadian securities is 6 percent. Currently in the spot market, 1 Canadian dollar = 104.84 Japanese yen. In the six-month forward market, 1 Canadian dolar = 104.84 Japanese yen. If interest rate parity holds, what is the current nominal interest rate on six-month, risk-free Japanese securities? Format: 1.1%
Suppose that you are a swap bank and you notice that interest rates on coupon bonds are as shown. Develop the 3-year bid price of a euro swap quoted against flat USD LIBOR. The current spot exchange rate is $1.50 per €1.00. The size of the swap is €40 million versus $60 million. Rates USD Euro In other words, what will you be willing to pay in euro against receiving USD LIBOR? O 6 percent O5 percent none of the options 3-year $ 7% € 5% 7 percent
A stock price is worth CHF 229 on 01.01.2022 and CHF 152 on 01.01.2023. The exchange rate between CHF and $ is 1.0575 CHF/$ and the exchange rate between CHF and british pounds (GPB) is 0.972 CHF/GPB. a) If the price growth rate was the same in 2021 as in 2022, what was the price, in CHF, on 01.01.2021? (Round your answer to 2 digits after the decimal point if needed)
Assume 1 euro = $1.1 in the 180-day forward market and the 180-day risk-free rate is 8% in the U.S. and 4% in France. What is the spot rate? Question 3 options: a. 1.1902 b. 1.0788 c. 1.1523 d. 1.1002
Suppose you own a portfolio of British securities valued at $430,000. The exchange rate is currently at $1= £0.57. A currency futures contract on British pounds is set at 62,500 pounds. a. How many contracts must you purchase to protect your portfolio from exchange rate risk? b. Suppose 1 month after you purchase the contracts, the exchange rate changes to $1 = £0.59. What is your profit/loss in USD?
Counterparty A can borrow from the floating rate market at LIBOR + 0.5% and Counterparty B can borrow from the Eurobond market at 7%. If Counterparty A pays 7.35% into the swap and Counterparty B pays the LIBOR rate plus 0.5% into the swap, then the overall cost to borrow by Counterparty B is: a. 7.85% b. LIBOR + 0.5% С. 7% d. LIBOR + 7.5% е. 7.35%
Q2) Suppose the current one-year euro swap rate y0[0, 1] is 1.74%, and the two-yearand three-year swap rates are 2.24% and 2.55% respectively. Euro swap rates are quotedwith annual payments and 30/360 daycount (thus α = 1). A hedge fund(HF) executes the following two trades with a dealer:1(1) The HF pays fixed and receives floating on e100 million notional of a one-year swap atthe forward swap rate.(2) The HF receives fixed and pays floating on e100 million notional of a three-year swapat the forward swap rate.Assume bid-offer costs are negligible.a) After one year, what net cashflow has the dealer paid to (or received from) the HF?b) Suppose after one year, one-year and two-year euro swap rates are unchanged. What isthe current value of the remaining part of the HF trade?c) Suppose after one year, the one-year euro swap rate is unchanged but the two-year euroswap rate is now Y%. What value of Y gives a total zero profit on the trade (at T = 1)?d) Do you like the trades the HF…
Question Il: Suppose that the exchange rate is $0.92/e. Let rs= 4%, and re= 3%, u = 1.2, d = 0.9, T = 0.75, number of binomial periods = 3, and K = $1.00 Use Binomial Option pricing to answer the following two questions. (a) What is the price of a 9-month European call? (b) What is the price of a 9-month American call?
Find the hedge ratio a 1-period at-the-money put option on ¥300,000. The spot exchange rate is ¥100 = $1.00. In the next period, the yen can increase in dollar value by 15 percent or decrease by 10 percent. The risk-free rate in dollars is i$ = 5%; The risk-free rate in yen is i¥ = 1%. A.-0.44 B.-0.66 C.-0.60 D.-0.40
Given the following data: R= $1.00N100 F=$1.00N90 lus 5% If the interest parity condition is expected to hold, interest rates in Japan (anan) should equal % (enter your answer as a percentage rounded to two d
Q1a. Consider the following securities for the same Japanese firm traded on an exchange: A one-year zero-coupon bond with par ¥10, 000 currently priced at ¥9, 500. A one-year dual-currency bond with coupon rate 5% on the par ¥10,000 and $100 principal, currently priced at ¥ 10, 100. A one-year forward with forward price $1 = \100 traded in the OTC market. Are there any arbitrage opportunities? Why?
Q1-13 If a speculator observes that the current 3-month forward rate on Swiss francs is 20¢ = 1 franc, but he/she expects that the spot rate in 3 months will be 30¢ = 1 franc, then this speculator would now a. buy dollars on the forward market. b. buy francs on the forward market. c. sell francs on the forward market. d. buy francs on the spot market and simultaneously sell francs on the 3-month forward market if the current spot rate is 25¢ = 1 franc.

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