Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
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Question
Chapter 10, Problem 2.2E
To determine
Forward contract:
A forward contract is an agreement where the deal has been committed to exchange the two currencies at a specified rate at a specified point of time. The rate of exchange of two currencies has been determined in advance and it may be different from the spot rate existing at that specified point of time.
:
Computation of 180-day forward rate to buy FC.
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Students have asked these similar questions
Suppose that the U.S. interest rate on one year Treasury notes was 4.7%. We will use this as the annual interest rate in
the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.2%. The spot rate is 1.0162
EUR/USD. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage?
If so, what would be the total profit if we borrowed $25 million?
OA YES-$27,395.21 would be the profit
OB. YES-$33,385.41 would be the profit
OC. YES-$37,342.89 would be the profit
OD. NO- there is no opportunity for a profit
Suppose that the U.S. interest rate on one year Treasury notes was 4.5%. We will use this as the annual interest rate in the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.1%. The spot rate is 1.0162 EUR/USD.. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage?
If so, what would be the total profit if we borrowed $20 million for 3 months?
A. YES- $27,395.21 would be the profit
B. YES- $29,385.41 would be the profit
C. YES- $31,695.53 would be the profit
D. YES- $33,875.42 would be the profit
E. NO- there is no opportunity for a profit
You are given that the annual Australian dollar interest rate is 1% and the United States annual
interest rate is 2.5%. The spot rate for the United States dollar is $A1.20.
(a) Using interest rate parity, calculate the forward rate premium of the United States dollar
with respect to the Australian dollar.
(b) Using your answer to (a), calculate the one-year forward rate.
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