Question Three: SpeculationRead the following case and answer the question that follows.Welles Fargo Bank, based in Los Angeles, California, has the ability to borrow 30 million U.S. dollars(USD) at 5% annualized. It can then invest in either the euro (EUR), the Australian dollar (AUD), or theCanadian dollar (CAD). For simplicity, suppose that the lending rate of all of the euro, the Australiandollar, and the Canadian dollar is 3% annualized over a 10-day time period. The spot rates and theexpected rates of the euro, Australian dollar and the Canadian dollar are given in the table below.Spot Rate(01/06/2022, 09:00 PM)Expected Spot RateAfter 5 daysEUR-USD1.12971.14101 EUR in USDAUD-USD0.71660.73451 AUD in USDCAD-USD0.78570.79361 CAD in USDQuestion:Based on the information given above, determine in which currency should Welles Fargo Bank invest:EUR, AUD or CAD? Justify your answer. Calculate the potential profit in U.S. dollars. Calculate theeffective rate of return on investment.

Different currencies are available at different rates and banks can utilize to earn profit on that.

Read the following case and answer the question that follows. Welles Fargo Bank, based in Los Angeles, California, has the ability to borrow 30 million U. (USD) at 5% annualized. It can then invest in either the euro (EUR), the Australian dollar (AUD Canadian dollar (CAD). For simplicity, suppose that the lending rate of all of the euro, the A dollar, and the Canadian dollar is 3% annualized over a 10-day time period. The spot rates expected rates of the euro, Australian dollar and the Canadian dollar are given in the table belo Spot Rate (01/06/2022, 09:00 PM) Expected Spot Rate After 5 days EUR-USD 1.1297 1.1410 1 EUR in USD AUD-USD 0.7166 0.7345 1 AUD in USD CAD-USD 0.7857 0.7936 1 CAD in USD

Read the following case and answer the question that follows. Welles Fargo Bank, based in Los Angeles, California, has the ability to borrow 30 million U. (USD) at 5% annualized. It can then invest in either the euro (EUR), the Australian dollar (AUD Canadian dollar (CAD). For simplicity, suppose that the lending rate of all of the euro, the A dollar, and the Canadian dollar is 3% annualized over a 10-day time period. The spot rates expected rates of the euro, Australian dollar and the Canadian dollar are given in the table belo Spot Rate (01/06/2022, 09:00 PM) Expected Spot Rate After 5 days EUR-USD 1.1297 1.1410 1 EUR in USD AUD-USD 0.7166 0.7345 1 AUD in USD CAD-USD 0.7857 0.7936 1 CAD in USD

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 firm you work for is Multinational Widget Inc. You are involved in a fixed-for-fixed currency swap between ¥ and $US. The swap has 5 years left to maturity and a principal of $1 million US or ¥100 million. In the swap, you make annual payments of $80,000 to the bank (and also pay the principal at maturity) and you receive annual payments of ¥10,000,000 per year (and also receive the principal at maturity). Assume that when this swap was set up, it was "at market", meaning that the net value to you was zero. If the current spot rate is 90 ¥/$US, the current interest rate for ¥ is 12% and the current interest rate for $US is 10%, what is the value of your swap position? $4,035.50 US $5,565.250 US $80,345.50 US $90,67.50 US None of these
Suppose that gold costs USD 330 an ounce in the United States and GBP 220 an ounce in UK. What must be the GBP / USD rate? •Suppose that gold prices rise by 2% in US and by 5% in UK. What will be the price of gold in the two currencies atthe end of the year? What must be the exchange rate at the end of the year? •Show that at the end of the year each dolar buys 3% more GBP as predicted in PPP. •What are current gold prices in US and UK or EU?
Acacia Bank expects the euro to depreciate against the dollar and plans to take a short position in euros and a long position in dollars. Assume the following1. Interest rate on borrowed euros is 5 percent annualized2. Interest rate on dollars loaned out is 6 percent annualized3. Spot rate is 0.90 per dollar4. Expected spot rate in ten days is 0.95 per dollar5. Acacia Bank can borrow 10 millionDescribe the steps Acacia should take to profit from shorting euros and going long on dollars, show your calculations.
TNB has a 10-year, ¥50 million loan outstanding with a Japanese bank. The Yen loanhas a 2.5% annual interest rate. The loan was taken 5 years ago and so has 5 more yearsto go. Daibochi, a Japanese plastics maker with operations in Malaysia has justnegotiated a RM 5 million, 5-year loan with Maybank at 7.5% annual interest. Bothcompanies are worried about the foreign exchange exposure. Design a currency swapthat will enable both companies to manage exchange rate risk. (Assume debt servicingwill be on 6-monthly basis, the spot Yen/Ringgit rate is 10 Yen/Ringgit).
. AU.S. bank can earn 6% on dollar loans or 8% on pound denominated loans to British concerns. The bank currently has $500 million in dollar loans and British pound loans equivalent to $400 million. The loans are funded by dollar denominated CDs paying 4%. All loans and CDs are on single payment terms. The current spot rate for pounds is S1.8604 and the one year forward rate is $1.8405.TWhat is the bank's spread if they fully hedge their exposure to pounds?
Subject:- finance
Please use this information to answer the question below: A US firm's expected Accounts Payable in Canada due in 1 year CAD 20,000,000 USD 0.65 Current Spot Rate (SR) for CAN Annual interest rate in US (Rh) 5% Annual interest rate in Canada (Rf) 3% If the firm Uses money market hedge, one year from now, their accounts payable will cost them
Given the following information, take advantage of the triangular arbitrage opportunity and calculate the US dollar profit for an investment of $1,000,000. Keep at least two decimals in your calculations and round at the very end to enter your answer with no decimals (i.e, if your final answer is 9.98, you will enter 10). Singapore dollar in US dollars (USD/SGD) 0.73 US dollars in British pounds (GBP/USD) 0.83 Singapore dollar in British pounds (GBP/SGD) 0.71
Subject:- finance
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