QUESTION 2The annual interest rate for bank deposits in Euros is 0.025 while that on US dollar deposits is 0.035.A Euro costs 1.20 dollars. The forward exchange rate for next year is 1.20 dollars per Euro. What isthe expected return on investing in Europe.0.0250.050.01-0.02QUESTION 3The US interest rate is 0.05 while the interest rate in Australia is 0.10. What is the expected return oninvesting in Australia.0.050.100.120.02

The question is related to expected return.

Answered: QUESTION 2 The annual interest rate for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Problem 6.13 Required: Suppose you conduct currency carry trade by borrowing $1 million at the start of each year and investing in the New Zealand dollar for one year. One-year interest rates and the exchange rate between the U.S. dollar ($) and New Zealand dollar (NZ$) are provided below for the period 2000 - 2009. Note that interest rates are one-year interbank rates on January 1st each year, and that the exchange rate is the amount of New Zealand dollar per U.S. dollar on December 31 each year. The exchange rate was NZ$1.9088/$ on January 1, 2000. Fill out columns (4) – (7) and compute the total dollar profits from this carry trade over the ten-year period. Also, assess the validity of uncovered interest rate parity based on your solution of this problem. You are encouraged to use the Excel spreadsheet software to tackle this problem. Note: Negative value should be entered with a minus sign. Enter profit value answers in dollars, rather than in millions of dollars. Do not round…
Exercise 2.12. At the close of business on 20 November 2020, the exchange rate for Australian dollars against the British pound is 1.7148 (GBP is the domestic currency). This means that you get A$1.7148 for £1. The Bank of England rate is 0.5% and the Reserve Bank of Australia rate is 2.5%. Find the 3-months forward price of a Australian dollar (in GBP).
Consider the following returns: Period United States United Kingdom Exchange Rate 1 10% 5% $3 2 15% -5% 2.5 3 -5% 15% 2.5 4 12% 8% 2 5 6% 10% 1.5 6 2.5 Note that the exchange rate is stated as beginning of period dollars for pounds. What is the average return in each market from the point of view of a US investor and of a UK investor?
Give typing answer with explanation and conclusion
30 of 38 Suppose that the one-year interest rate is 2.1% in Canada and 4.4% in Germany. The current exchange rate of Canadian dollar (CAD) to Euro is CAD 1 = Euro 0.69. What is the expected exchange rate after one year that satisfies the interest rate parity condition? O A. CAD 1 = Euro 0.722 O B. CAD 1 = Euro 0.706 O C. CAD 1 = Euro 0.659 O D. CAD 1 = Euro 0.675 Unsure
fINANCE
In June 2010, an investor is considering investing in bank deposits in Korea and Japan. Theannual interest rate on Korean deposits is 6.25%, versus 3.75% on deposits in Japan. Supposethat the forward rate (for June 2011) in June 2010 is equal to F(won/yen) = 8.2. In June 2010, theexpected exchange rate is 8.2 won/¥. For the remainder of this question, use the linearapproximations for uncovered and covered interest rate parity. The spot exchange rate in June2010 is E(won/yen) = 8 a. Does covered interest parity hold in this example?b. Does uncovered interest parity hold in this example?c. Suppose the exchange rate in June 2011 is equal to 7.472 won per yen. Calculate theinvestor’s actual return, assuming that he invests in Japanese deposits in June 2010.How do these answers compare with those from (b)?d. Consider two investors: one uses speculation and the other uses hedging. Based on yourprevious answers, which one earned a higher return (or smaller loss) on Japanese assetsbetween June…
Question 2 You have the opportunity to store your hard-earned money in a French or a Japanese bank account. The Japanese bank account promises an interest rate of 2% a year. If you deposit 1000 Euro in the French bank account, interests will accrue so that you will have 1105 Euros in two years. Today's exchange rate is 1 Euro to 129.60 Yen. a) What should the 1-year forward exchange rate be for you to be indifferent between the two accounts? Make sure you explain what theories justify your calculations b) If the yearly inflation rate for France is 4%, what do you expect the Japanese inflation to be?
QUESTION 3 (a) KL Co. will be paying USD100,000.00 in 60 days. Assume the following interest rates: U.S. Malaysia 360-day borrowing rate 360-day deposit rate 7% 6% 5% 4% Assume the forward rate of the USD is RM4.20 and the spot rate of the USD is RM4.15. If KL Co. uses a money market hedge, how much will KL Co. be paying in 60 days?
If the interest rate in Oman is 10% and in China is 15%. Current spot exchange rate is CNY16.59/OMR and one-year forward rate is CNY16.57/OMR. If you have the option to borrow OMR 1,000 from bank Muscat for one year then, on the basis of covered interest arbitrage how much arbitrage profit you can make? OMR 51.3880 None of these OMR 1,051.3880 OMR 1,000
A Japanese investor can earn a 1 percent annual interest rate in Japan or about 3.5 percent per year in the United States. If the spot exchange rate YEN/USD is 101, what is the spot rate one-year from now (1 year forward rate) so an investor be indifferent between the U.S. and Japanese investments? a b с d 104.81 108.18 103.50 106.57
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