On August 8th the six-month risk - free rate of interest in Switzerland was 3 percent. If the spot exchange rate for dollars for Swiss francs is 0.9241 and the six-month forward exchange rate is 0.9268, what woul you expect the U.S. six-month risk - free rate to be? The U.S. six- month risk - free rate is . . . %

On August 8th the six-month risk - free rate of interest in Switzerland was 3 percent. If the spot exchange rate for dollars for Swiss francs is 0.9241 and the six-month forward exchange rate is 0.9268, what woul you expect the U.S. six-month risk - free rate to be? The U.S. six- month risk - free rate is . . . %

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, a U.S. dollar can be exchanged for 3 New Zealand dollars or for 1.6 Canadian dollars. The one- year CD (deposit) rate is 7 percent in New Zealand, is 6 percent in the United States, and is 5 percentin Canada. Interest rate parity exists between the United States and New Zealand and between theUnited States and Canada. The international Fisher effect exists between the United States and NewZealand. You expect that the Canadian dollar will be worth $.61 at the end of one year. Karen (based inthe United States) invests in a one-year CD in New Zealand and sells New Zealand dollars one yearforward to cover her position. Marcia (who lives in New Zealand) invests in a one-year CD in theUnited States and sells U.S. dollars one year forward to cover her position. William (who lives inCanada) invests in a one-year CD in the United States and does not cover his position. James (basedin the United States) invests in a one-year CD in New Zealand and does not cover his position. Basedon this…
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.
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If the current exchange rate is $1.90/£, the one-year forward exchange rate is $2.06/£, and the interest rate on British government bills is 5% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)
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