Suppose a U.S. investor wishes to invest in a British firm currently selling for £100 per share. The investor has $24,000 to invest, and the current exchange rate is $2/£. Suppose now the investor also sells forward £12,000 at a forward exchange rate of $1.90/£. Calculate the dollar-denominated returns for each scenario. (Round your answers to 2 decimal places. Negative amounts should be indicated by a minus sign.) Rate of Return (%) at Given Exchange Rate Price per Share (£) Exchange Rate: $1.80/£ $2.00/£ $2.20/£ % % % % % % 95 % 100 105 %

Suppose a U.S. investor wishes to invest in a British firm currently selling for £100 per share. The investor has $24,000 to invest, and the current exchange rate is $2/£. Suppose now the investor also sells forward £12,000 at a forward exchange rate of $1.90/£. Calculate the dollar-denominated returns for each scenario. (Round your answers to 2 decimal places. Negative amounts should be indicated by a minus sign.) Rate of Return (%) at Given Exchange Rate Price per Share (£) Exchange Rate: $1.80/£ $2.00/£ $2.20/£ % % % % % % 95 % 100 105 %

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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Suppose that 1 Danish krone could be purchased in the foreign exchange market today for $0.17. If the krone appreciated 7% tomorrow against the dollar, how many krones would a dollar buy tomorrow? Do not round intermediate calculations. Round your answer to four decimal places. ____ krones
Can I get the correct an
cYou observe that the exchange rates for Japanese Yen at Tokyo Bank are given as follows: bid = JY101/$; ask = JY102/$, whereas they are given at New York Bank as: bid = $ 0.0097 Y; ask = $ 0.0098y. J J Calculate the arbitrage profit for $1 million (up to nearest cents, e.g., 100.23)
Suppose a U.S. investor wishes to invest in a British firm currently selling for £40 per share. The investor has $10,000 to invest, and the current exchange rate is $2/£. a. How many shares can the investor purchase? Number of shares = b. Fill in the table below for rates of return after one year in each of the nine scenarios (three possible prices per share in pounds times three possible exchange rates). (Leave no cells blank - be certain to enter "0" wherever required. Negative values should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Price per Share (£) Pound-Denominated Return (%) Dollar-Denominated Return (%)for Year-End Exchange Rate $1.80/£ $2/£ $2.20/£ £35 % % % % % % £40 % % % % % % £45 % % % % % %
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…
Given the following information, take advantage of the triangular arbitrage opportunity and calculate the US dollar profit for an investment of $1,000,000. Keep at least two decimals in your calculations and round at the very end to enter your answer with no decimals (i.e, if your final answer is 9.98, you will enter 10). Singapore dollar in US dollars (USD/SGD) 0.73 US dollars in British pounds (GBP/USD) 0.83 Singapore dollar in British pounds (GBP/SGD) 0.71
Suppose Dassie Bank quoted the exchange rate of Singapore dollar in US$ at $0.60, the pound rate in US$ at $1.50, and the pound rate in Singapore dollars at S$2.6. For a US resident having $1,000 to do triangular arbitrage, she/he will end up withAnswerUS dollars after the arbitrage.
Assuming the following quotes: Citibank quotes U.S. dollars per pound at $1.5400/£ National Westminster quotes euro per pound at €1.6000/£ Deutsche bank quotes dollars per euro at $0.9700/€ Is there an arbitrage opportunity based on these quotations? If so, show how a market trader with one million $ (1,000.000 $) can make an inter-market arbitrage profit, and calculate that profit.
Suppose you are a U.S. investor who is planning to invest $100,000 in China. Your Chinese investment gains 5%. If the exchange rate moves from 7.12 Yuan per dollar to 7.14 Yuan per dollar over the period, what is your total return on this investment?

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