An investor enters a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.5000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is (a) 1.4900 and (b) 1.5200?
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An investor enters a short forward contract to sell 100,000 British pounds for US dollars at an exchange rate of 1.5000 US dollars per pound. How much does the investor gain or lose if the exchange rate at the end of the contract is (a) 1.4900 and (b) 1.5200?
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- An investor enters into a short forward contract to sell ¥50,000 for U.S. dollars at an exchange rate of ¥110/$1. a) How much does the investor gain or lose if the exchange rate at the end of the contract is ¥108/$1? b) Did ¥ appreciate or depreciate against $ in part a)?An investor enters into a short forward contract to sell ¥50,000 for U.S. dollars at an exchange rate of ¥110/$1. a) How much does the investor gain or lose if the exchange rate at the end of the contract is ¥108/$1? b) Did ¥ appreciate or depreciate against $ in part a)? c) Why do you think that the investor is entering into a short forward contract to sell ¥50,000? d) How much does the investor gain or lose if the exchange rate at the end of the contract is ¥112/$1?A trader enters into a short forward contract on 100 million yen. The forward exchange rate is $0.0090 per yen. How much does the trader gain or lose if the exchange rate at the end of the contract is (a) $0.0084 per yen; (b) $0.0101 per yen?
- The one-year interest rate in a European and a Mexican bank is 1% and 12% respectively. The spot exchange rate is EMX$/€ = 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?Suppose a 1-year UK T-bill pays 2.14% and a 1-year Canadian T-bill pays 1.32%. The current spot exchange rate is 1 British pound (GBP) = 1.7244 Canadian dollar (CAD) and the 1-year forward exchange rate is 1 GBP = 1.6837 CAD. What arbitrage profit can an investor earn on an investment value of CAD 1 milion?The E/S exchange rate is £1 = $1.30. US interest rate is 5% per year. UK interest rate is 2% per year. a. Find the fair price of a 1-year £/$ forward contract implied by the covered interest rate parity. b. Describe the arbitrage strategy if the actual forward price were £1 = $1.29 c. Why might the actual forward price differ from the fair price?
- 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 CSuppose you have the following spot exchange rates: USD/AUD 0.5300 AUD/EUR 1.6428 USD/EUR 0.8782 a) Calculate the US dollar profit (per 1 USD), if any, on a three-point arbitrage. b) Calculate AUD profit (per 1 AUD), if any, on a three-point arbitrage. c) How can you explain the answers in (1) and (2)?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.
- Let's assume cross exchange rates hold. Let's assume that tw average exchange rates are $1.05 per euro (EUR) and 20 pesc (MXN) per $1. If I want to convert 100,000 euro to pesos, approximately how may pesos should I receive? Hint: First determine the cross exchange rate for euro to peso Then, calculate pesos received for 100,000 euro. O 1,904,761.90 pesos O 4,761.90 pesos O 2,100,000 pesos O 5,250 pesosSuppose that the current spot exchange rate is €0.85 per $ and the three-month forward exchange rate is €0.8313 per $. The three- month interest rate is 5.60 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or €850,000. Required: a. How will you realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars? What will be the size of your arbitrage profit? b. Assume that you want to realize profit in terms of euros. Show the covered arbitrage process and determine the arbitrage profit in euros. How will you realize a certain profit and size of your arbitrage profit? Complete this question by entering your answers in the tabs below. Required A Required B How will you realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars? What will be the size of your arbitrage profit? Note: Do not round…A product sells for $1,000 in the U.S. If the exchange rate between $ and euro is $1 = 0.90 euro, and if ppp holds, what would be the price of the same product in europe?
