South Korean firm is able to obtain a three-year loan inSouth Korean Won (KRW) at a fixed yearly rate of 2.75%. A US firm is able to borrow US dollars also for three years at a fixed yearly rate of 1.25% . The US firms has a subsidiary in South Korea and needs KRW 4 trillion. The current exchange rate is KWR 1,140/ US$. The two firms agree a currency swap.
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1. South Korean firm is able to obtain a three-year loan inSouth Korean Won (KRW) at a fixed yearly rate of 2.75%. A US firm is able to borrow US dollars also for three years at a fixed yearly rate of 1.25% . The US firms has a subsidiary in South Korea and needs KRW 4 trillion. The current exchange rate is KWR 1,140/ US$. The two firms agree a currency swap.
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- Assuming you have the following information: the current exchange rate is SGD 0.40/ MYR. Meanwhile, the SGD 0.3907/ MYR of the three-month forward exchange rate. The interest rate of three- month is 5.6 percent per year in RB Malaysia. The interest rate of three-month is S.4 percent per year in CBC Singapore. Assume that you can borrow up to MYR1.000.000. (a) Assuming that you want to realize profit in terms of Ringgit Malaysia/SGD,determine the size of your arbitrage profits. b) Assume that you want to realize profit in terms of Singaporean Dollar. Thow the covered arbitrage process and determine the arbitrage profit in SGD.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.Suppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$2.00 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.80 per F$. Suppose that Retrojo negotiates a forward contract with a bank, which commits it to purchasing Fijian dollars at F $2,000,000.00 at $0.80 per Fijian dollar in 90 days. Thus, Retrojo knows with certainty that it will need F$2,000,000.00×$0.80 per Fijian dollars =$1,600,000.00 for this exchange. Assume the Fijian dollar depreciates over this time period to $0.67 per Fijian dollar. If this were the case the outside of the contract only (U.S. dollars) would be needed to exchange for the required F$2,000,000.00.
- Currently, the spot exchange rate is $0.84 per A$ and the one-year forward exchange rate is $0.80 per A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,190,476, which is equivalent to $1,000,000 at the current spot rate. Required: Determine if IRP is holding between Australia and the United States. If IRP is not holding, explain in detail how you would realize certain profit in U.S. dollar terms. What will be your arbitrage profit? Explain how IRP will be restored as a result of arbitrage transactions you carry out above.Suppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$1.10 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.53 per F$. Suppose that Retrojo negotiates a forward contract with a bank, which commits it to purchasing Fijian dollars at F$1,100,000.00 at $0.53 per Fijian dollar in 90 days. Thus, Retrojo knows with certainty that it will need F$1,100,000.00 × $0.53 per Fijian dollars = $583,000.00 for this exchange. Assume the Fijian dollar depreciates over this time period to $0.42 per Fijian dollar. If this were the case the, outside of the contract with the bank, only $ (U.S. dollars) would be needed to exchange for the required F$1,100,000.00.Currently, the spot exchange rate is $1.67 per £ and the three-month forward exchange rate is $1.69 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,670,000 or £1,000,000. Required: a. Determine whether the interest rate parity is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? c. Explain how the IRP will be restored as a result of covered arbitrage activities. Complete this question by entering your answers in the tabs below. Required A Required B Required C Determine whether the interest rate parity is currently holding. Determine whether the interest rate parity is currently holding.
- Currently, the spot exchange rate is $1.51 per £ and the three-month forward exchange rate is $1.53 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,510,000 or £1,000,000. Required: a. Determine whether the interest rate parity is currently holding. b. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? c. Explain how the IRP will be restored as a result of covered arbitrage activities. Complete this question by entering your answers in the tabs below. Required A Required B Required C If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? Note: Do not round intermediate calculations. Interest arbitrage Arbitrage profit Borrow in the U.S. and invest in the U.K. Hedge exchange rate risk by selling British pounds forward. < Required A Required CK1. A Polish currency dealer has good credit and can borrow either €1,600,000 or $2,000,000 for one year. The one-year interest rate in the U.S. is i$ = 6% and in the euro zone the one-year interest rate is i€ = 2%. The spot exchange rate is $1.20 = €1.00 and the one-year forward exchange rate is $1.25 = €1.00. Show how you can realize a certain euro profit via covered interest arbitrage. Group of answer choices Borrow $2,000,000 at 6%; trade $2,000,000 for €1,666,667 at the spot rate; invest euros at i€ = 2%; translate euro proceeds back to dollars at the forward rate of $1.25 = €1.00 for gross proceeds of $2,125,000. Net profit will be $5,000. Borrow $2,000,000 at 6%; trade $2,000,000 for €800,000 at the spot rate; invest euros at i€ = 2%; translate euro proceeds back to dollars at the forward rate of $1.20 = €1.00. Net profit will be $17,600. Borrow €1,600,000 at i€ = 2%; translate euros to dollars at the spot rate, invest dollars in the U.S. at i$ = 6% for one year;…Lee Junho who is a currency trader in Japan observers the following marketconditions:• Annual interest rate in Japan: 1.5% per annum• Annual interest rate in France: 7.0% per annum• Current spot exchange rate: ¥ 114.4733/€• One-year forward exchange rate: ¥ 110.2423/€• No transaction costs If Lee Junho can borrow ¥100,000,000, specific the transactions he may carryout in order to make some arbitrage profit and calculate the amount of theprofit
- Suppose that a US-based company is buying Chinese goods. Current exchange rate for Chinese Yuan is 0.15 USD. The price of goods is ¥13,000 per unit. The company is buying 800 units per year with a fixed contract for the next two years. Suppose that Chinese Yuan appreciate to 0.2 USD in the next year. The US importer will respond to this by lowering the demand to 600 units in the third year. What cash flow will be reflected on the balance of payments at the end of the third year? Your Answer:The Cambodian interest rate is 6% and the Vietnam interest rate is 7%. The spot exchange rate of one Cambodian riel is 5.6 Vietnamese dong (VND) and the one-year forward rate of riel is VND5.7. Now if there is a transaction cost of 1% for any covered interest arbitrage, about potential covered interest arbitrage between Cambodia and Vietnam _____. a. money will flow to Vietnam b. money will flow to Cambodia c. there will be no CIA d. money can go both waysCurrently, the spot exchange rate is $1.59 per £ and the three-month forward exchange rate is $1.61 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,590,000 or £1,000,000. Required: Determine whether the interest rate parity is currently holding. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? Explain how the IRP will be restored as a result of covered arbitrage activities.