Consider the situation of firm A and firm B. The current exchange rate is $2.00/£ Firm A is a U.S. MNC and wants to borrow £30 million for 2 years. Firm B is a British MNC and wants to borrow $60 million for 2 years. Their borrowing opportunities are as shown, both firms have AAA credit ratings. $ £ A $ 6 % £ 5 % B $ 7 % £ 4 % Explain how firm B could use the forward exchange markets to redenominate a 2-year £30m 4 percent pound sterling loan into a 2-year USD-denominated loan.
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- Suppose exchange rate of Japanese yen in US $ is $.010, exchange rate of euro in US $ is $1.34, and exchange rate of euro in Japanese yen is 139 yen and you have $100, 000 to invest. By looking the exchange rates, do you see triangular arbitrage opportunity? What is your profit or loss? Show the work to support your answer.How to calculate IRR and IRP in this question? The answer is 7% in the end, but I do not know how to get it. Consider the situation of firm A and firm B. The current exchange rate is $1.50/€. Firm A is a U.S. MNC and wants to borrow €40 million for 2 years. Firm B is a French MNC and wants to borrow $60 million for 2 years. Their borrowing opportunities are as shown; both firms have AAA credit ratings. $ $ 7% $ 8% € € 6% € 5% A B If firm B could use the forward exchange markets to redenominate a 2-year €40m 5 percent euro loan into a 2-year USD-denominated loan, what would be the interest rate?Suppose the following exchange rate quotations are available: Citibank quotes U.S. dollars per Euro: $1.2223/€Barclays Bank quotes U.S. dollars per pound sterling: $1.8410/£ Dresdner Bank quotes Euros per pound sterling: €1.5100/£ You are a market trader with $1,000,000. Will you be able to make an arbitrage profit using these quotes? If yes, why? What will be the profit? Show your calculations.
- The one-year interest rate in a European and a Mexican bank is 1% and 12% respectively. The spot exchange rate is EMX$/€ = 18.67 while the one -year forward exchange rate offered by the European bank is F€/MX$ = 0.05. i. Is there an opportunity for arbitrage? Calculate the interest forward exchange rate that eliminates it. ii. What steps would someone take to make an arbitrage profit, and how would he profit if he must borrow 1,000€ from a European bank?Consider two companies: Honda and IBM. Honda wants to borrow US$ for the following 5 years at a fixed rate, while IBM wants to borrow Yen also for the following 5 years at a fixed rate. The rates available to two companies in US$ and Yen markets are shown below. US$ Yen Honda 8.0% 7.6% IBM 5.4% 6.6% 1. What is the total gain from the currency swap? Which firm has the comparative advantage in US dollar market, IBM or Honda? 2. Please complete chart below. Use text boxes near each arrow to indicate the interest rate and the currency in which it will be paid/received.Suppose the current exchange rate between the US dollar (USD) and the euro (EUR) is 1 USD = 0.85 EUR. Additionally, assume that the expected rate of return on US assets is 8% and the purchasing price of a US asset is $ 100. Calculate the expected rate of return on this US asset in terms of euros. [5] How does the ability of international investors to quickly and easily switch between domestic and foreign assets impact the relationship between exchange rates and asset prices, particularly in terms of expected rates of return?
- Use the following interest rate assumptions: U.S. = 5.5% Euro = 7.5% If a U.S. firm borrows in euros, the euro would have to ____ against the dollar by ____ in order to have the same effective financing rate from borrowing dollars. Select one: a. depreciate; about 1.86% b. appreciate; about 1.93% c. appreciate; about 1.90% d. depreciate; about 1.93%c. Consider the spot exchange rate between the € and the pound sterling E€/£=1.50, while the annual forward exchange rate is F€/£=1.60. The annual interest rate is 5.4% in Italy and 5.2% in the UK. Assume that you can borrow up to €1,000,000 or £666,667, at the current spot exchange rate. i. Show how you can make profits from covered interest arbitrage. Consider you are an Italian investor. What is your profit? ii. Explain how the interest rate parity will be restored as a result of covered arbitrage activities. iii. Suppose you are a British investor. Show the covered arbitrage process and compute profits in terms of £. Note: Round your answers to the second decimal point.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 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.Suppose that the current spot exchange rate is €2.62/OMR and the one year forward exchange rate is €2.65/OMR. The one year interest rate is 6 in Euros and 5 in Oman. You can borrow OMR 1,000,000 or the equivalent in euro at the current spot exchange rate? Assume you are Omani based investor? Find Interest rate parity of €/OMR Show how you can realize guaranteed profit from covered interest? How much the size of arbitrage profit in OMR?Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and that the spot exchange rate is $1.12/€ and the one-year forward exchange rate, is $1.16/€. Assume that al of these rates will be used and a speculator can borrow $1,000,000 or €1,000,000. This is an example whether Uncovered Interest Arbitrage is possible O This is an example of whether Purchasing Power Parity holds This is an example whether fisher effect holds O None of the above This is an example whether Covered Interest Arbitrage is possible