The current spot exchange rate is AUD 1.00 = USD 0.80. The Australian risk‐free rate is 3.0% p.a. compounded continuously, whereas the US risk‐free rate is 0.8% p.a. compounded continuously. The no‐arbitrage price on a 9‐month forward contract written on the exchange rate is likely to be a) USD 0.813 / AUD b) AUD 0.787 / USD c) AUD 1.271 / USD d) AUD 1.230 / USD

The current spot exchange rate is AUD 1.00 = USD 0.80. The Australian risk‐free rate is 3.0% p.a. compounded continuously, whereas the US risk‐free rate is 0.8% p.a. compounded continuously. The no‐arbitrage price on a 9‐month forward contract written on the exchange rate is likely to be a) USD 0.813 / AUD b) AUD 0.787 / USD c) AUD 1.271 / USD d) AUD 1.230 / 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 USD-GBP (Pound Sterling) exchange rate is 1.38. The USD interest rate is 2% per annum, and the GBP interest rate is 1% per annum. According to the Black-Scholes-Merton model, what is the price of a European call option on the exchange rate with a strike price of 1.50 and maturing after 18 months. The volatility of the exchange rate is 20%. The contract multiplier is 100. a. $9.90 b. $12.28 c. $11.67 d. $9.43 e. $10.96
Currently, the spot exchange rate is $0.80/A$ and the one-year forward exchange rate is $0.76/A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,250,000, which is equivalent to $1,000,000 at the current spot rate. Determine if IRP is holding between Australia and the United States. Yes O No
Suppose that the current EUR/GBP exchange rate is £0.86 per euro. The current 6-month interest rates are: GBP 4%, EUR 6%. There are three 6-month forward contracts available, with the following exchange rates: Contract A B C EUR/GBP 0.86 0.85 0.90 You expect to incur an expense of €50,000 in six months. Can you identify any relevant risk in terms of the EUR/GBP exchange rate? Would you use any of the available forward contracts to hedge against this risk? Explain and provide an example.
Suppose the U.S. yield curve is flat at 5% and the euro yield curve is flat at 3%. The current exchange rate is $1.25 per euro. What cash flows will be exchanged on a 4-year foreign exchange swap with notional principal of 260 million euros (or equivalently, at current exchange rates, $325 million)? Note: Do not round intermediate calculations. Enter your answer in dollars not millions rounded to the nearest dollar value. Swap rate ......... per year
7
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
Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months. S_0 (EUR/AUD) 0.60 Se (EUR/AUD) 0.50 (0.3) and 0.65 (0.7) Premium on AUD call option R = EUR0.02 Exercise exchange rate E = 0.62 Time to expiry 3 months What is the expected value of payables in AUD under hedge Will the option to hedge be undertaken on the basis of expected spot rate? Explain.
Suppose one-year German Treasury bill pays 4.34% and one-year Canadian Treasury bill pays 3%. The current spot exchange rate is 1 Euro (EUR) = 1.3581 Canadian dollar (CAD) and the one-year forward exchange rate is 1 EUR = 1.3238 CAD. How much %3D arbitrage profit can an investor earn on an investment value of CAD 3 million?
In a currency swap, using the information below, can you calculate the quarterly payments that should be made in Australian dollars? The exchange rate is 1.3 Australian dollars per one US dollar and the notional amount in Australian dollars is $100,000.00 TTM PVF 90 180 270 360 Singapore Dollars 0.98 0.94 0.93 0.89 PVF US Dollars 0.99 0.98 0.97 0.96 Please round your answer to the nearest three decimals. Do not type the $ symbol.
The current spot exchange rate is AUD 1.4925 = USD1. The Australian risk-free rate is 1.5% p.a. compounded continuously, whereas the US risk-free rate is 2.2% p.a. compounded continuously. The no-arbitrage price on a 9-month forward contract written on the exchange rate is likely to be _______________ AUD 1.485 / USD USD 0.667 / AUD AUD 0.674 / USD AUD 1.500 / USD
The Cambodian interest rate is 6% and the Vietnam interest rate is 7%. The spot exchange rate of one Cambodian riel is 5.6 Vietnamese dong (VND) and the one-year forward rate of riel is VND5.7. If there now occurs a change in the interest differential such that money flows from Vietnam to Cambodia in a covered interest arbitrage, as a result of this money flow the forward riel exchange-rate will _____. a. depreciate b. appreciate c. remain the same
The spot rate between Japan and the U.S. is ¥100.37 = $1, while the one-year forward rate is ¥99.97 = $1. A one-year risk-free security in the U.S. is yielding 3.8 percent. What is the rate of return on a one-year risk-free security in Japan assuming that interest rate parity exists?

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