The spot rate between Canada and the U.S. is Can$1.2416/$, while the one-year forward rate is Can$1.2415/$. The risk-free rate in Canada is 4.43 percent and risk-free rate in the United States is 2.66 percent. How much in profit can you earn on $7,000 utilizing covered interest arbitrage? $108.93 $99.59 $123.31 $138.73 $124.49

The spot rate between Canada and the U.S. is Can$1.2416/$, while the one-year forward rate is Can$1.2415/$. The risk-free rate in Canada is 4.43 percent and risk-free rate in the United States is 2.66 percent. How much in profit can you earn on $7,000 utilizing covered interest arbitrage? $108.93 $99.59 $123.31 $138.73 $124.49

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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Subject:- finance
You find the current annual interest rate in the U.S. is 3% and the annual interest rate in Canada is 5%. The spot rate for Canadian dollar is $0.95 per CAD, the 90-day Canadian dollar forward rate is $0.948 per CAD. Calculate the covered interest arbitrage profit assuming you can borrow up to $1 million U.S. dollars (or equivalent value of Canadian dollars). A. $3569 USD profit. B. None is correct. C. $2868 USD profit. D. $4672 USD profit.
Suppose you are a U.S. investor who is planning to invest $805,000 in Mexico. Your Mexican investment gains 10.2 percent. If the exchange rate moves from 12.4 pesos per dollar to 12.7 pesos per dollar over the period, what is your total return on this investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Total return 4
2. Money Market Hedge on Receivables Assume that Parker Company will receive 200,000 Canadian dollars in 360 days. Assume the following interest rates: 360-day borrowing rate 360-day deposit rate U.S. 6% 4% Canada 5% 3% Assume the forward rate of the Canadian dollar is $.80 and the spot rate of the Canadian dollar is $.78. If Parker Company uses a money market hedge, how much U.S. dollars will it receive in 360 days from its Canadian dollar receivable? (round to whole dollars) (2 points)
A UK company owes an American company $100,000 due to be paid in three months. The company wishes to avoid exchange rate risk, so borrows enough in sterling now and converts it immediately to dollars which are invested to bring in the required amount in three months' time. The following information is available: Spot rate $/£ 1.7755 - 1.7765 3-month interest rates: Sterling 3.250% US dollar 2.425% How much will the UK company have to borrow now to clear the debt in three months? A. £54,958 B. £54,989 £56,744 D. £56,775 C.
Assume the following information (rates are actual 90-day interest rates, not annualized): Spot rate of Canadian dollar S 0.900 90 day forward rate of Canadian dollar $0.890 90-day Canadian interest rate 3.50% 90-day U.S. interest rate 2.40% Given this information, the yield (percentage return) to a U. 5. investor who used covered interest arbitrage would be ( assume the investor invests $1 million). The yield (percentage return) to a Canadian investor who used covered interest arbitrage would be Group of answer choices
smart banking corp. can borrow $5 million at 6 percent annualized. it can use the proceeds to invest in Canadian dollars at 9 percent annualized over a six - day period. the canadian dollar is worth $.95 and is expected to be worth $.94 is six days. based on this information, shiuld smart banking corp borrow U.S. dollars and invest in canadian dollars? whar would be the gain or loss in U.S. dollars? dont chatgpt answer
Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) a. Exposure b. Return if dollar appreciates C. Return if dollar depreciates Appreciation 10.440 % 32.440 %
klp.4
Current spot rate of CAD = $0.800. Interest rate in the U.S. = 7.0%. Interest rate in the Canada = 5.00%. If the 1-year current forward rate for CD is $0.820, your covered rate of return will be: ○ 9.675% 2.439% ○ 7.625% ○ 4.390%
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Suppose that the interest rates in Norway and the US are, respectively, 8% and 4%. Suppose that the spot price of the Norwegian Kroner is $0.155. A three - month forward contract on Norwegian Kroner is available for $0.156. Is there a possibility of arbitrage? If yes, how can you earn the arbitrage profit?

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