You are UK company, 200,000 US$ payable to US in one year. Answer in terms of BP (British Pound). Round at four decimal places Examples: 1.23487 1.2349; 1.23533 --> 1.2353 <--- Information for Forward Contract: Forward exchange rate (one yr): 0.7124 BP/$ Information for Money Market Instruments (MMI): Current exchange rate: 0.7173 BP/$ Investment return at JP Morgan (in US): 5% annual Interest rate of borrowing from HSBC (UK): 3% annual Information you need for Currency Options Contract: Exercise options premium at 0.15 BP/$ Interest rate of borrowing from HSBC (UK): 3% annual Allowed to exercise options at 0.7215 BP/$ Thus, the costs if the forward hedge is chosen is BP 142,480. The costs if the MMI is chosen is BP 140,727.429. What is the break-even exchange rate in BP/$? 0.467 O.549 .602 0.637
You are UK company, 200,000 US$ payable to US in one year. Answer in terms of BP (British Pound). Round at four decimal places Examples: 1.23487 1.2349; 1.23533 --> 1.2353 <--- Information for Forward Contract: Forward exchange rate (one yr): 0.7124 BP/$ Information for Money Market Instruments (MMI): Current exchange rate: 0.7173 BP/$ Investment return at JP Morgan (in US): 5% annual Interest rate of borrowing from HSBC (UK): 3% annual Information you need for Currency Options Contract: Exercise options premium at 0.15 BP/$ Interest rate of borrowing from HSBC (UK): 3% annual Allowed to exercise options at 0.7215 BP/$ Thus, the costs if the forward hedge is chosen is BP 142,480. The costs if the MMI is chosen is BP 140,727.429. What is the break-even exchange rate in BP/$? 0.467 O.549 .602 0.637
Chapter7: International Arbitrage And Interest Rate Parity
Section: Chapter Questions
Problem 45QA
Related questions
Question
None
Transcribed Image Text:You are UK company, 200,000 US$ payable to US in
one year. Answer in terms of BP (British Pound).
Round at four decimal places Examples: 1.23487
1.2349; 1.23533 --> 1.2353
<---
Information for Forward Contract:
Forward exchange rate (one yr): 0.7124 BP/$
Information for Money Market Instruments (MMI):
Current exchange rate: 0.7173 BP/$
Investment return at JP Morgan (in US): 5% annual
Interest rate of borrowing from HSBC (UK): 3% annual
Information you need for Currency Options Contract:
Exercise options premium at 0.15 BP/$
Interest rate of borrowing from HSBC (UK): 3% annual
Allowed to exercise options at 0.7215 BP/$
Thus, the costs if the forward hedge is chosen is BP
142,480. The costs if the MMI is chosen is BP
140,727.429. What is the break-even exchange rate in
BP/$?
0.467
O.549
.602
0.637
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you