XYZ Corporation, located in the United States, has an accounts payable obligation of ¥2250 million payable in six months to a bank in Tokyo. The current spot rate is ¥116/$1.00 and the six month forward rate is ¥109/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. a) What is the future dollar cost of meeting this obligation using the money market hedge a. 19582168.89 b. None of the above ○ c. 6527389.63 O d. 13054779.26

XYZ Corporation, located in the United States, has an accounts payable obligation of ¥2250 million payable in six months to a bank in Tokyo. The current spot rate is ¥116/$1.00 and the six month forward rate is ¥109/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. a) What is the future dollar cost of meeting this obligation using the money market hedge a. 19582168.89 b. None of the above ○ c. 6527389.63 O d. 13054779.26

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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Similar questions

A Japanese exporter has a €1,000,000 receivable due in one year. To hedge the position, you will buy put options on euro True or False?
The spot rate is $0.51/CAD1. Platinum Bank undertakes arbitrage transactions in CAD using a sum of $100 million. Annual interest rates are 9.8 per cent in Australia and 5.8 per cent in Canada. The bank can borrow or lend at these rates. What is the expected spread, if the forward rate is $0.55/CAD1? a. 2.5788% O b. 4.2980% c. None of the options is correct d. 3.6533% e. 5.5875%
am. 117.
Suppose that California Co., a U.S. based MNC, seeks to capitalize a difference in interest rates between euros and British pounds via the use of a carry trade. In particular, after 1 month, funds invested in euros will yield a 0.50% percent return, while funds invested in pounds will yield a return of 2.00% percent. Currently the spot rate of the British pound is $1.00 while the spot rate of the euro is $0.80. In other words, the pound is worth 1.25 euros. California Co. expects these spot rates to remain constant over the next month. After repaying their euro loan, California Co. has 211,200 pounds remaining. Assume that the exchange rate is still $1.00 per pound. These pounds are equivalent to $ , which represents a profit of $ over the initial $200,000 that California Co. used from their own funds.
Suppose one-year German Treasury bill pays 4.13% and one-year Canadian Treasury bill pays 2.95%. The current spot exchange rate is 1 Euro (EUR)= 1.3694 Canadian dollar (CAD) and the one-year forward exchange rate is 1 EUR = 1.3335 CAD. How much arbitrage profit can an investor earn on an investment value of CAD 4 million Answer: CAD (DO NOT ROUND YOUR CALCULATIONS UNTIL YOU REACH THE FINAL ANSWER. ENTER YOUR RESPONSE ROUNDED TO TWO DECIMAL PLACES AND NO SEPARATOR FOR THOUSANDS.)
Suppose that California Co., a U.S. based MNC, seeks to capitalize a difference in interest rates between euros and British pounds via the use of a carry trade. In particular, after 1 month, funds invested in euros will yield a 0.50% percent return, while funds invested in pounds will yield a return of 2.00% percent. Currently the spot rate of the British pound is $1.00 while the spot rate of the euro is $0.80. In other words, the pound is worth 1.25 euros. California Co. expects these spot rates to remain constant over the next month. After 1 month, California Co. now has 693,600 pounds after investing their converted pounds. However, it is now time for California Co. to repay the 600,000 euro loan. If California Co. borrowed these euros at the prevailing rate of 0.50% percent, they must repay a total of rate of 1.25, this repayment is equivalent to pounds. euros. At the cross pounds. Thus, after repaying the loan, California Co. will have
American Pharoah management is planning to make a $ 2.0 million loan to a French firm. Currently, LIBOR is at 1.5 percent. American management considers a default risk premium of 1.30 percent, a foreign exchange rate risk premium of 0.20 percent, and a country risk premium of 0.13 percent to be appropriate for this loan.What is the loan rate charged by American Pharoah?
a) Assume the following information: 180‑day U.S. interest rate = 8% 180‑day British interest rate = 9% 180‑day forward rate of British pound = $1.50 Spot rate of British pound = $1.48 Assume that a U.S. exporter will receive 400,000 pounds in 180 days. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated revenue for each type of hedge. b) As treasurer of a U.S. exporter to Canada, you must decide how to hedge (if at all) future receivables of 250,000 Canadian dollars 90 days from now. Put options are available for a premium of $.03 per unit and an exercise price of $.80 per Canadian dollar (CA$). The forecasted spot rate of the CA$ in 90 days follows: Future Spot Rate Probability (%) $.75 50…
A European firm borrows MXN from a Mexico bank at a 7% interest rate. Over that same time, the Euro appreciates 2.70% against the MXN. What is the European firm's €-denominated equivalent cost of borrowing?
Newstar Co. expects to pay 500,000 euro in one year. Assume the annual interest rate of borrowing or lending euro is 1% and the annual interest rate of borrowing or lending U.S. dollar is 2%. The spot rate of euro is $1.12 per euro. How much guaranteed amount of U.S. dollar does the company expect to pay after hedging the euro payable transaction in the international money market? (pick the closest answer) A. 565,545 USD. B. 554,510 USD. C. 562,786 USD. D. 576,912 USD.
Use the following information for the next 2 questions. Assume that the U.S. one-year interest rate is 8% and the one-year interest rate on Australian dollars is 13%. The U.S. annual inflation is expected to be 5%, while the Australian annual inflation is expected to be 7%. The current spot exchange rate of an Australian dollar is $0.689. You have $100,000 to invest for one year. Question 4 (6.25 points) You believe that IFE holds. What will be the yield on your investment if you invest in the Australian market? (HINT: You believe that IFE holds, so the spot rate one year later is the rate obtained from IFE. Note that the interest rate given in the problem is the nominal rate.) 13.00% 8.00% 18.23% 7.16%
Currently, the spot rate is RM4.2000/USD and the one year forward rate is RM4.1000/USD. Interest rate in United States is 3% per annum and in Malaysia is 2% per annum. Assume that you can borrow as much as USD100,000 or RM420,000 for your coming project. If Interest Rate Parity (IRP) is not holding, determine how would you carry out covered interest arbitrage (CIA) and compute the profit.

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