Question 18 You buy a chalet in France (say in the Limoges region). The chalet costs EUR1mm. The spot rate is $1.13 per 1 euro. You are going to sell the chalet in exactly one year. So you call JPMorgan and sell $1.13 M against buying EUR1MM for the property. To hedge you then sell the EUR against buy USD for settlement in 1 year. EUR interest rates are 1% and USD rates are 5%. Calculate the 1 year forward price.
Question 18 You buy a chalet in France (say in the Limoges region). The chalet costs EUR1mm. The spot rate is $1.13 per 1 euro. You are going to sell the chalet in exactly one year. So you call JPMorgan and sell $1.13 M against buying EUR1MM for the property. To hedge you then sell the EUR against buy USD for settlement in 1 year. EUR interest rates are 1% and USD rates are 5%. Calculate the 1 year forward price.
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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Transcribed Image Text:Question 18
You buy a chalet in France (say in the Limoges region). The chalet costs EUR1mm. The
spot rate is $1.13 per 1 euro.
You are going to sell the chalet in exactly one year. So you call JPMorgan and sell $1.13 M
against buying EUR1MM for the property.
To hedge you then sell the EUR against buy USD for settlement in 1 year.
EUR interest rates are 1% and USD rates are 5%.
Calculate the 1 year forward price.
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