Sun Bank USA has purchased a 24 million one-year Australian dollar loan that pays percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/US is $0.625/A$1. It has funded this loan by accepting a British pound (BP)-denominate deposit for the equivalent amount and maturity at an annual rate of 13 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of th year are $0.588/A$1 and $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your fin answer to the nearest whole number. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $180,000 (disregarding any change in

Sun Bank USA has purchased a 24 million one-year Australian dollar loan that pays percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/US is $0.625/A$1. It has funded this loan by accepting a British pound (BP)-denominate deposit for the equivalent amount and maturity at an annual rate of 13 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of th year are $0.588/A$1 and $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your fin answer to the nearest whole number. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $180,000 (disregarding any change in

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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You are US company, 500,000 BP (British Pound) payable to UK in one year. Answer in terms of US$. Information for Forward Contract: Forward exchange rate (one yr): 1.54 $/BP Information for Money Market Instruments (MMI): Current exchange rate: 1.50 $/BP Investment return at Aerion Fund Management (in UK): 4% annual Interest rate of borrowing from Bank of America (in USA): 2% annual Information you need for Currency Options Contract: Options premium: 0.015 $/BP Interest rate of borrowing from Bank of America (USA): 2% annual Allowed to exercise options at 1.54 $/BP What are the costs of MMI? (Answer in US$ of course. You are US company!) Group of answer choices None of the above $789,343 $735,504 $770,082 $783,452
On September 30, 2020, Peace Frog International (PFI) (a U.S.-based company) negotiated a two-year, 3,300,000 Chinese yuan loan from a Chinese bank at an interest rate of 4 percent per year. The company makes interest payments annually on September 30 and will repay the principal on September 30, 2022. PEl prepares U.S. dollar financial statements and has a December 31 year-end. Relevant exchange rates are as follows: U.S. Dollar per Chinese Yuan (CNY) Date September $ 30, 2020 0.220 December 0.225 31, 2020 September 30, 2021 0.240 December 0.245 31, 2021 September 30, 2022 0.270 Prepare all journal entries related to this foreign currency borrowing. Taking the exchange rate effect on the cost of borrowing into consideration, determine the effective interest rate in U.S. dollars on the loan in each of the three years 2020, 2021, and 2022.
A U.S. firm exports products to a German firm and will receive payment of €200,000 in three months. On June 1, the spot rate of the euro was $1.12, and the 3-month forward rate was $1.10. On June 1, the firm negotiated a forward contract with a bank to sell €200,000 forward in three months. The spot rate of the euro on September 1 is $1.15. the firm will receive $_______ for the euros. 224,000 230,000 220,000 200,000
Use the following information for Problems 11 and 12.MNC Corp. (a U.S.-based company) sold parts to a South Korean customer on December 1, 2017, with payment of 10 million South Korean won to be received on March 31, 2018. The following exchange rates apply:MNC’s incremental borrowing rate is 12 percent. The present value factor for three months at an annual interest rate of 12 percent (1 percent per month) is 0.9706.Assuming that MNC entered into a forward contract to sell 10 million South Korean won on December 1, 2017, as a fair value hedge of a foreign currency receivable, what is the net impact on its net income in 2017 resulting from a fluctuation in the value of the won?a. No impact on net income.b. $58.80 decrease in net income.c. $2,000 decrease in net income.d. $1,941.20 increase in net income.
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.715/A$1 and $1.520/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars. Round your final answer to the nearest whole dollar. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest…
. 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?
Required: Zeda Incorporated, a U.S. MNC, is considering making a fixed direct Investment In Denmark. The Danish government has offered Zeda a concessionary loan of DKK14,150,000 at a rate of 4 percent per annum. The normal borrowing rate is 6 percent in dollars and 5.5 percent in Danish krone. The loan schedule calls for the principal to be repaid in three equal annual Installments. What is the present value of the benefit of the concessionary loan? The current spot rate is DKK 5.60 per $1.00 and the expected inflation rate is 3 percent In the United States and 2.5 percent in Denmark. Note: Round the exchange rates to two decimal places. Round the Intermediate calculations and final answer to nearest whole number. Answer is complete but not entirely correct. Present value of the benefit of the concessionary loan S 850,918
In alternative universe, the Australian government has decided to enter into a target-zone arrangement with the United States. Australian firm K-Roo has a USD 150,000 payable due in 180 days. Assuming the current exchange rate is AUD1.44/USD, the central rate for the USD/AUD is set at 0.5 USD per AUD, and the currencies are allowed to fluctuate with a 10% band on either side, what is the maximum possible amount (in terms of AUD) that K-Roo could lose due to changes in the future exchange rate? Select one: a. 114000.00 b. 101416.67 c. 133500.00 d. 21600.00 e. -54000.00
You are US company, 500,000 BP (British Pound) payable to UK in one year. Answer in terms of US$. Information for Forward Contract: Forward exchange rate (one yr): 1.54 $/BP Information for Money Market Instruments (MMI): Current exchange rate: 1.50 $/BP Investment return at Aerion Fund Management (in UK): 6% annual Interest rate of borrowing from Bank of America (in USA): 2% annual Information you need for Currency Options Contract: Options premium: 0.015 $/BP Interest rate of borrowing from Bank of America (USA): 2% annual Allowed to exercise options at 1.54 $/BP What are the costs of MMI? (Answer in US$ of course. You are US company!)
The following is information on interest-rates and exchange rates for Australia and the U.K. being quoted by ANZ bank (assume there are no bid-ask spreads, for simplicity). The spot exchange rate for the number of AUD (Australian dollars) per GBP (British pound) is 1.8005. The annualized 6 month interest-rate in Australia (respectively, the U.K.) is 10% (respectively, 8%). Using the formula given in class, what is the 6 month forward exchange rate (consistent with no arbitrage) expressed as the number of AUD per GBP? Assume 6 months is exactly 0.5 years. Give your answer to 4 decimal places (because Canvas only accepts 4 decimal places).
On April 1, 2017, Mendoza Company borrowed 500,000 euros for one year at an interest rate of 5 percent per annum. Mendoza must make its first interest payment on the loan on October 1, 2017, and will make a second interest payment on March 31, 2018, when the loan is repaid. Mendoza prepares U.S.-dollar financial statements and has a December 31 year-end. Prepare all journal entries related to this foreign currency borrowing assuming the following exchange rates for 1 euro:
OneUSF, a U.S. MNC based in Florida, is considering making a fixed direct investment in Italy. The Italian government has offered OneUSF a concessionary loan of €2,700,000 at a rate of 3 percent per annum. The current spot rate is $1.31/€1.00 and the expected inflation rate is 2.5% in the U.S. and 2% in Italy. The normal borrowing rate is 6 percent in dollars and 5.5 percent in euros. The loan schedule calls for the principal to be repaid in three equal annual installments. The marginal corporate tax rate in Italy and the U.S. is 35%. What is the present value of the benefit of the concessionary loan? W $143.174 $984,145 $111,756 None of the above with the $10,000 of the correct answer $1,131,289

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