Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
expand_more
expand_more
format_list_bulleted
Related questions
Question
Transcribed Image Text:If the interest rate in Oman is 10% and in China is 15%. Current spot exchange rate is CNY16.59/0MR and one-year forward rate is CNY16.57/OMR. If you have
the option to borrow OMR 1,000 from bank Muscat for one year then, on the basis of covered interest arbitrage how much arbitrage profit you can make?
OMR 51.3880
None of these
OMR 1,051.3880
OMR 1,000
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by stepSolved in 2 steps
Knowledge Booster
Learn more about
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
- Use the information below to calculate the expected gain or loss on the carry trade strategy for an initial borrowed amount of 1,000,000 (you will have to determine the currency of borrowing). Keep at least two decimals in your calculations but round up or down at the end (enter the final answer without decimals). Current spot rate of Polish zloty (PLN/EUR) Expected future spot rate of of zloty (PLN/EUR) in three months Annualized three-month interest rate on Polish zloty (%) Annualized three-month interest rate on euros (%) 3,119,971 135,769 margin of error +/- 10 4.64 4.11 3.77 1.53arrow_forwardDO NOT USE AI TO COMPLETE An investor enters today into a one-year-long currency forward on 1000000 units of foreign currency. The current exchange rate is 1.05 dollars per Swiss franc. Interest rates in the US and Switzerland are 3% and 4% per annum, respectively, with continuous compounding. A. What should be the delivery price for this contract? B. Explain the transactions that will occur at maturity if the spot exchange rate at that moment is1.03 dollars per Swiss francarrow_forward1. Assume you notice the following information. Assume you spend $1 million USD to create an arbitrage trading strategy. What is your profit is USD. Remember to consider the profit after you pay back your loan Spot (CAD/USD)=1.75 • 1 Year Forward (CAD/USD) = 1.65 • 1 Year Canadian interest rate of 3% in Canadian Dollars (CAD) • 1 Year US interest rate of 4% in US Dollars (USD) 592,484.85arrow_forward
- Today's spot exchange rate: 1 euro = $1.25.US interest rate (home interest rate) is 7%.EU interest rate (foreign interest rate) is 10%.a) If the IRP (Interest rate parity) holds, what should the forward exchange rate be today?b) Assume that today, you invest $500 in the EU market for one year and at the same time, enter a currency forward contract to sell euro in a year at the forward rate from part a). If today's spot exchange rate is: 1 euro=$1.32 instead of $1.25, show how much profits or losses you make next year.arrow_forwardNewstar Co. expects to pay 500,000 euro in one year. Assume the annual interest rate of borrowing or lending euro is 1% and the annual interest rate of borrowing or lending U.S. dollar is 2%. The spot rate of euro is $1.12 per euro. How much guaranteed amount of U.S. dollar does the company expect to pay after hedging the euro payable transaction in the international money market? (pick the closest answer) A. 565,545 USD. B. 554,510 USD. C. 562,786 USD. D. 576,912 USD.arrow_forwardCovered Interest Arbitrage in Both Directions. Thefollowing information is available:• You have $500,000 to invest.• The current spot rate of the Moroccan dirham is$.110.• The 60-day forward rate of the Moroccan dirham is $.108.• The 60-day interest rate in the United States is1 percent.• The 60-day interest rate in Morocco is 2 percent.a. What is the yield to a U.S. investor who conductscovered interest arbitrage? Did covered interest arbitrage work for the investor in this case?b. Would covered interest arbitrage be possible for aMoroccan investor in this case?arrow_forward
- 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_forwardThe spot rate for the Japanese yen currently is A??Y107 per $1. The one-year forward rate is A??Y106 per $1. A risk-free asset in Japan is currently earning 7 percent. If interest rate parity holds, what rate can you earn on a one-year risk-free U.S. security? 6.07 percent 7.94 percent 8.01 percent 8.08 percent 6.00 percentarrow_forwardSuppose exchange rates are: EUR/AUD = 1.5550 GBP/AUD = 2.8923 GBP/EUR = 1.8600 Starting with 10,000 AUD, what are the one-round-trip arbitrage profits rounded to the nearest AUD? 14,180 AUD No arbitrage profit is possible. 1,961 AUD 73,654 AUDarrow_forward
- A UK company owes an American company $100,000 due to be paid in three months. The company wishes to avoid exchange rate risk, so borrows enough in sterling now and converts it immediately to dollars which are invested to bring in the required amount in three months' time. The following information is available: Spot rate $/£ 1.7755 - 1.7765 3-month interest rates: Sterling 3.250% US dollar 2.425% How much will the UK company have to borrow now to clear the debt in three months? A. £54,958 B. £54,989 £56,744 D. £56,775 C.arrow_forwardA Canadian supplier is offering two options to his American client to pay for an equipment: paying 13,000 Canadian dollars now or paying 10,000 US dollars in 6 months. If the annual interest rate for the Canadian dollar is 5% and for the US dollar is 8%, what is the "implied" exchange rate? Question 5 options: CAD0.7581/USD. CAD1.3520/USD. CAD0.7505/USD. CAD1.3190/USD. CAD1.3325/USD. CAD0.7396/USD.arrow_forwardSuppose that the interest rates in Norway and the US are, respectively, 8% and 4%. Suppose that the spot price of the Norwegian Kroner is $0.155. A three - month forward contract on Norwegian Kroner is available for $0.156. Is there a possibility of arbitrage? If yes, how can you earn the arbitrage profit?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education