Suppose you observe the following one-year interest rates, spot exchange rates and futures prices. Futures contracts are available on €10,000. How much risk-free arbitrage profit could you make on one contract at maturity from this mispricing? Exchange Rate Interest Rate APR So(S/E F3s0(S/€) $1.45 = €1.00 $1.48 = €1.00 is 4% 3% (Note: If you are unable to view the image shown above, you can download it: interestTable.PNG) O $159.22. O $153.10. O $439.42. O none of the options.

Suppose you observe the following one-year interest rates, spot exchange rates and futures prices. Futures contracts are available on €10,000. How much risk-free arbitrage profit could you make on one contract at maturity from this mispricing? Exchange Rate Interest Rate APR So(S/E F3s0(S/€) $1.45 = €1.00 $1.48 = €1.00 is 4% 3% (Note: If you are unable to view the image shown above, you can download it: interestTable.PNG) O $159.22. O $153.10. O $439.42. O none of the options.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 7MC

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Q2) Suppose the current one-year euro swap rate y0[0, 1] is 1.74%, and the two-yearand three-year swap rates are 2.24% and 2.55% respectively. Euro swap rates are quotedwith annual payments and 30/360 daycount (thus α = 1). A hedge fund(HF) executes the following two trades with a dealer:1(1) The HF pays fixed and receives floating on e100 million notional of a one-year swap atthe forward swap rate.(2) The HF receives fixed and pays floating on e100 million notional of a three-year swapat the forward swap rate.Assume bid-offer costs are negligible.a) After one year, what net cashflow has the dealer paid to (or received from) the HF?b) Suppose after one year, one-year and two-year euro swap rates are unchanged. What isthe current value of the remaining part of the HF trade?c) Suppose after one year, the one-year euro swap rate is unchanged but the two-year euroswap rate is now Y%. What value of Y gives a total zero profit on the trade (at T = 1)?d) Do you like the trades the HF…
You Answered Today you observe the folowing quotes: Spot EURUSD $1.37 60 Day Forward EURUSD = $1.15 In 60 day you expec to receive 281,718 Euros. In 60 days you expect the EURUSD exchange rate to be $1.17. In 60 days the EURUSD actually is $1.21. You decided to hedge your receivables with a forward. How many USD will you receive? 232,824.79
You enter into a futures contract to buy €125,000 at $1.53 per euro. The spot exchange rate when you enter the contract is $1.63. Your initial performance bond is $6,100 and your maintenance level is $2,400. At what settle price will you get a demand for additional funds to be posted to your account? 1.6596 1.7596 1.8896 1.5004 1.5596 1.6004
Suppose you are a speculator from France. You observe the following 1-year interest rates, spot exchange rates and forward prices. Forward contract sizes are $10,000 each. Exchange rate €0.6500 = $1.00 €0.6731 = $1.00 Interest rate APR So(€/S) is 3% F3so(€/S) 4% Assume you did your own calculation of the forward price based on interest rate parity (IRP). It shows that an arbitrage opportunity exists because the forward price that you calculated is: F3so(€/S) of €0.6563 = $1.00. What actions will you take to make use of the arbitrage opportunity and what will your profit be? Page 1 of 5 а. €167.89. b. €240.24. C. $70.29. d. $43.08. е. None of the above. See my workings below.
Suppose the current USD/euro exchange rate is 1.2000 dollars per euro. The six-month forward exchange rate is 1.1950. The six-month USD interest rate is 1% per annum continuously compounded. Estimate the six-month euro interest rate. I am using this formula F=S*e^(rs-rs)*t 1.1950=1.2*e^(0.01-rf)*0.5 (Its for a Derivatives class, am I right?)
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Analyse the scenario below. In each case, explain your reasoning Suppose that the current EUR/GBP exchange rate is £0.92 per euro. The current2-year interest rates are: GBP 4%, EUR 5%. Suppose further that you can use a 2-year forward contract with a EUR/GBP rate of £0.91 per euro. Could this contractbe used for an arbitrage opportunity? If yes, provide an example. Calculatearbitrage profit and explain how this profit can be earned
Han Co wishes to predict the exchange rate between the dollar ($) and the euro (€), based on the following information: Spot exchange rate $1= €1.6515 Dollar interest rate 4.5% per year Euro interest rate 6.0% per year Which of the following is the one-year forward rate, using interest rate parity theory? O $1= €1.2386 O $1= €1.6752 O $1= €2.2020 O $1= €1.6281
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Suppose the current USD/EUR spot exchange rate is 1.20$/ €. At the same the euro interest rate amount to 10% per year while the dollar interest rate is 0% per year. a. What is the no-arbitrage one-year USD/EUR forward exchange? b. Suppose the one-year USD/EUR forward exchange was 1.25$/ €. How could you make money from this situation? 4