Fundamentals of Financial Management, Concise Edition (MindTap Course List)
9th Edition
ISBN: 9781305635937
Author: Eugene F. Brigham, Joel F. Houston
Publisher: Cengage Learning
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Chapter 17, Problem 12P
a.
Summary Introduction
To determine: The forward rate for 90 days.
Introduction:
Interest Rate Parity:
It refers to that theory, which indicates the difference of interest rates provided by two different countries is to be same as the difference of two types of the exchange rate, which are forward exchange rate and spot exchange rate.
Forward Exchange Rate:
This rate indicates the pre-decided rate of exchange for currencies of two countries for a date in nearby future.
b.
Summary Introduction
To identify: The 90-day forward exchange rate indicates exchange at premium or discount in comparison of spot rate.
Introduction:
Spot Exchange Rate:
This rate indicates that particular rate to get exchange the currency of foreign country at the current date.
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Assume that interest rate parity holds and that 90-day risk-freesecurities yield a nominal annual rate of 3% in the United States and a nominal annual rateof 3.5% in the United Kingdom. In the spot market, 1 pound = $1.29.a. What is the 90-day forward rate?b. Is the 90-day forward rate trading at a premium or a discount relative to the spot rate?
Consider the following money market information being quoted:
Which of the following statements is true?
Particulars
GBP Interest Rate
THB Interest Rate
Spot Rate
1-year Expected Spot Rate
Bid Rate
6.100%
10.550%
THB5.6601/GBP
THB5.9037/GBP
C.
Ask Rate
6.125%
10.625%
THB5.6622/GBP
THB5.9961/GBP
a. There is an arbitrage which can only be made by initially borrowing GBP and then investing
in THB.
b. More than one of the options in this question are correct.
The THB is selling at a premium to the GBP in the future.
O d. There is an arbitrage which can only be made by initially borrowing THB and then investing
in GBP.
Assuming that interest rate parity holds. In both the spot market and the 90 day forward market, 1 Japanese ye equals .0089 dollar. In Japan, 90-day risk free securities yield 4.3%. What is the yield on 90-day risk free securities in the US? Do not round intermediate calculations. Round your answer to two decimals places.
Chapter 17 Solutions
Fundamentals of Financial Management, Concise Edition (MindTap Course List)
Ch. 17 - Why do U.S. corporations build manufacturing...Ch. 17 - If the euro depredates against the U.S. dollar,...Ch. 17 - Prob. 3QCh. 17 - Should firms require higher rates of return on...Ch. 17 - Prob. 5QCh. 17 - Prob. 6QCh. 17 - Prob. 7QCh. 17 - Prob. 1PCh. 17 - Prob. 2PCh. 17 - Prob. 3P
Ch. 17 - Prob. 4PCh. 17 - Prob. 5PCh. 17 - Prob. 6PCh. 17 - CURRENCY APPRECIATION Suppose that 1 Danish krone...Ch. 17 - Prob. 8PCh. 17 - Prob. 9PCh. 17 - INTEREST RATE PARITY Assume that interest rate...Ch. 17 - PURCHASING POWER PARITY in the spot market, 15.4...Ch. 17 - Prob. 12PCh. 17 - SPOT AND FORWARD RATES Arvin Australian Imports...Ch. 17 - Prob. 14PCh. 17 - RESULTS OF EXCHANGE RATE CHANGES Early in June...Ch. 17 - FOREIGN INVESTMENT ANALYSIS After all foreign and...Ch. 17 - FOREIGN CAPITAL BUDGETING Sandrine Machinery is a...Ch. 17 - MULTINATIONAL FINANCIAL MANAGEMENT Yohe...Ch. 17 - MULTINATIONAL FINANCIAL MANAGEMENT Citrus Products...Ch. 17 - DISCUSSION QUESTIONS Recreate Table 17.1 for the...Ch. 17 - Prob. 2DQCh. 17 - Some of the websites show graphs indicating how...Ch. 17 - Prob. 4DQ
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