Is it profitable for a US bank to issue $200 million of one-year bonds in the US at 6.5% to invest it in one-year Brazilian government bond paying an annual interest rate of 8%, if current spot rate is 1.0537 BRL/USD and expected spot rate in a year from now is 0.9875 BRL/ USD? Does it make sense to use forward contract

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A: Exchange rate: It is the value of a currency that is exchanged with another currency.

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Q: Suppose the interest rate on investments in GBP is 12% in London and the interest rate for…

A: Covered interest rate parity is used to define the relationship between the forward and spot…

Q: What is the nominal cost of borrowing the JPY debt in US$ terms?

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A:

Q: A New Zealand company will receive a payment in USD in one year. It wants to hedge its exchange rate…

A: Forward rate= NZD per USD * (1+Interest rate in NZD)/(1+Interest rate in USA) Spot rate= 1.5836…

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A:

Q: California Co. will need 1 million Polish zloty in 2 years to purchase imports. Assume interest rate…

A: 5 year forward rate ($/Polish Zloty) = Spot rate($/Polish Zloty)*(1+US 2 year interest per…

Q: In the spot market, 1 Philippine peso can be exchanged for 2.51 Japanese yen. In the 1-year forward…

A: This is the question of interest rate parity, hereby "the forward rate premium is equal to the…

Q: The spot AUD/JPY exchange rate today is 80 yen per Australian dollar. The five-year forward AUD/JPY…

A: The question is based on the concept of Financial Management.

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Q: Suppose vou are a UK-based investor and the interest rate on investments in UK is 0.85% pa. and the…

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A:

Q: If riskless British govenment debt currently pays 2.5%, and the purchasing power parity value for…

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Q: 7. Negotiating the Rate. A sovereign borrower is considering a $100 million loan for a 4-year…

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A: Both of these methods are used to determine the Exchange rates. However the Covered Interest…

Q: D3

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A: Money market hedge is using money market to hedge the risk from foreign currency fluctuations

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Q: Suppose that your company will be receiving 30 million euros six months from now and the euro is…

A: Forward Contract: In a forward contract, two parties agree on a future date and price for the…

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A:

Q: A European firm borrows MXN from a Mexico bank at a 7% interest rate. Over that same time, the Euro…

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A: The risk free rate  at which   the investors these are use as a benchmarking order to determine the…

Q: Suppose that California Co., a U.S. based MNC, seeks to capitalize a difference in interest rates…

A: The answer is:1. 200,000 pounds2. 480000 pounds  Explanation:California Co. would have a total of…

Q: The next problem is about covered interest rate parity. Assume that the home country is the…

A: Here: iPH = interest rate in the Philippines = 8% iUS = interest rate in the US = 12% et+1 = 1-year…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.