Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
10th Edition
ISBN: 9780077835422
Author: Zvi Bodie Professor, Alex Kane, Alan J. Marcus Professor
Publisher: McGraw-Hill Education
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Chapter 19, Problem 9PS
If the current exchange rate is
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If the current exchange rate is $1.35/£, the 1-year forward exchange rate is $1.45/£, and the interest rate on British government bills is 3% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills?
If the current exchange rate is $1.70/£, the one-year forward exchange rate is $1.80/£, and the interest rate on British government bills is 5% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills?
If the current exchange rate is $1.70/£, the one-year forward exchange rate is $1.80/£, and the interest rate on British government bills
is 5% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Risk-free dollar-denominated return
%
Chapter 19 Solutions
Essentials of Investments (The Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 19 - Prob. 1PSCh. 19 - Prob. 2PSCh. 19 - Prob. 3PSCh. 19 - Prob. 4PSCh. 19 - Prob. 5PSCh. 19 - Prob. 6PSCh. 19 - Now suppose the investor in Problem 3 also sells...Ch. 19 - Prob. 8PSCh. 19 - If the current exchange rate is 1.35/ , the...Ch. 19 - If you were to invest 10,000 in the British bills...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Suppose that the interest rate on a US dollar deposit is 3% and the interest rate on a Japanese yen deposit is 1%. Today’s exchange rate is $1/¥ and the expected rate one year in the future is $1.2/¥, so $100 today can be exchanges for ¥100. Which currency deposit yield a higher expected rate of return (which currency investors should be willing to hold)? Why?arrow_forwardSuppose that the interest rates in the U.S. and Germany are equal to 5%, that the forward (one year) value of the € is F$/€ = 1$/€ and that the spot exchange rate is E$/€ = 0.75$/€. Please answer the following questions by explaining all steps of your analysis: Does the covered interest parity condition hold? Why or why not? How could you make a riskless profit without any money tied up assuming that there are no transaction costs in buying and or selling foreign exchange? PLEASE SHOW ALL STEPSarrow_forward2. The interest rate in European bank is 5% now, and the exchange rate is currently 1.05 dollars per euro. If you expect that the exchange rate will be 0.95 dollars per euro one year from now, what is the expected interest rate in the American bank?arrow_forward
- If the current exchange rate is $1.90/£, the one-year forward exchange rate is $2.06/£, and the interest rate on British government bills is 5% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)arrow_forward1. A one-year Japanese security is currently yielding 5%. Furthermore, it is expected that the exchange rate between the dollar and the yen is changing from 98 yen to the dollar, to 95 yen to the dollar over the next year. To invest in U.S. security rather than Japanese security, you would need a return at least equal to what value?arrow_forwardSuppose that you are the CFO of Google with an extra U.S. $20 Million to invest for one year. You are considering the purchase of U.S. T-bills that yield 4% per year. The spot exchange rate is $1.00 = €0.90, and the one-year forward rate is $1.00 = €0.95 . What must the interest rate in the Eurozone (on an investment of comparable risk) be before you are willing to consider investing there instead of the US? a. 9.78% b. 1.56% c. 4.00% d. 5.56%arrow_forward
- Suppose the british pound U-S.dollar exchange rate is currently So =£.50.Further suppose that the inflation rate in britain is predicted to be 10percent over the year coming year and(for the moment)the inflation rate in the united states is predicted to be zero. What do you think the exchange rate will be in a yeararrow_forwardSuppose that the current EUR/GBP rate is 0.6668 and the one-year forward exchange rate is 0.6742. The one-year interest rate is 1.8% in euros and 3.6% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount. Suppose you are a pound-based investor. Determine the profit/loss (in GBP, no cents) if you borrow locally and invest in Euros.arrow_forwardA. Suppose the dollar interest rate and the euro interest rate are the same and equal 2 percent per year. Suppose the expected future $/€ exchange rate is $1.20 per 1 €. Suppose now Euro interest rate decreases to 1 percent per year. Determine how the new equilibrium $/€ exchange rate will change if the US interest rate remains constant. B. Indicate how the change in the Euro interest rate will affect the equilibrium $/€ exchange rate and the expected return on euro assets. Explain the changes on the graph.arrow_forward
- Suppose the Dollar Interest Rate and the Pound Sterling Interest Rate are the same, 5 percent per year. What is the relation between the Current Equilibrium $/£ Exchange Rate and its Expected Future level? Suppose the Expected Future $/£ Exchange Rate, $1.52 per pound, remains constant as Britain's Interest Rate rises to 10 percent per year. If the U.S. Interest rate also remains constant, what is the New Equilibrium $/£ Exchange Rate?arrow_forwardQuestion (1) suppose the british pound U-S dollar exchange rate is currently So=£.50.Further suppose that the inflation rate in Britain is predicted to be 10percent over the year ,coming year and(for the moment)the inflation rate in the United States is predicted to be zero.What do you think the exchange rate will be in a yeararrow_forwardSuppose the current USD/EUR spot exchange rate is 1.20$/ €. At the same the euro interest rate amount to 10% per year while the dollar interest rate is 0% per year. a. What is the no-arbitrage one-year USD/EUR forward exchange? b. Suppose the one-year USD/EUR forward exchange was 1.25$/ €. How could you make money from this situation? 4arrow_forward
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