Question 1 You are considering uncovered interest arbitrage between the pound (GBP) and the US dollar (USD). The following data is available to you: Funds available: 2 million GBP Spot exchange rate: 1.40 USD per GBP Spot exchange rate one year ago: 1.26 USD per GBP USD 3 month interest rate: 2.32% GBP 3 month interest rate: 0.75% a) Calculate the profit that would be made if the exchange rate remains at its current level in 3 months' time. b) How would the profit figure change if the US dollar continues to weaken at the same rate as it has done over the previous year?
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- Use the information below to answer the following question. So($/€) F360 ($/€) Exchange Rate $ 1.45 € 1.00 = $ 1.48 = € 1.00 Interest Rate APR is i€ 4% 3% If you borrowed $1,000,000 for one year, how much money would you owe at maturity? Short Answer Toolbar navigation BIUS $1,524,400 A RN KE1. 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) 592,484.85Question 3 The spot dollar-euro rate is $1.20/€1 and the forward rate is $1.15/€1. You expect the spot dollar-euro rate to be $1.05/€1 in one year's time. You have €1 million to speculate with using the forward exchange market. (iii) What is your profit in both euros and dollars if you are correct and the spot dollar- euro rate is $1.05/€1 in one year's time? (iv) What is your loss in both euros and dollars if you are wrong and the spot dollar-euro rate is $1.40/€1 in one year's time
- Question 5: Assume that You are risk manager at BIC Investment. BIC fırm wants to fix currency rate for 5.000.000 USD export transaction in 120 days and 3.000.000 EURO import transaction in 180 days from AC Bank. Find bid and ask forward rate of AC Bank by using exchange rates and interest rates below. USD/TL: 13,3725/13,9850 USD interest rate: 0,50/1,00 TL interest rate: 21.00/27,00 EURO/TL: 15,2700/15,4250 EURO interest rate: 1,25/2,50Exercise 4: The following exchange rates are available to you. (You can buy or sell at the stated rates.) Assume you have an initial SF12,000,000. Can you make a profit via triangular arbitrage? If so, show the steps and calculate the amount of profit in Swiss francs (Swissies). Mt. Fuji Bank ¥ 92.00/$ Mt. Rushmore Bank SF1.02/$ Mt. Blanc Bank ¥ 90.00/SFMatch each term in Column A with its related definition in Column B. Column A 1. ____________ Spot rate 2. ____________ Currency appreciation 3. ____________ Translation risk 4. ____________ Transaction risk 5. ____________ Exchange rate Column B a. The rate at which one currency can be traded for another currency. b. The possibility that future cash transactions will be affected by changing exchange rates. c. A month ago, 1 U.S. was worth 8.5 Mexican pesos. Today, 1 is worth 9.0 Mexican pesos. The U.S. dollar has undergone what? d. The degree to which a firms financial statements are exposed to exchange rate fluctuation. e. The exchange rate of one currency for another for immediate delivery (today).
- Match each term in Column A with its related definition in Column B.Column A1. Spot rate2. Currency appreciation3. Translation risk4. Transaction risk5. Exchange rateColumn Ba. The rate at which one currency can be traded for another currency.b. The possibility that future cash transactions will be affected by changing exchange rates.c. A month ago, $1 U.S. was worth 8.5 Mexican pesos. Today, $1 is worth 9.0 Mexicanpesos. The U.S. dollar has undergone what?d. The degree to which a firm’s financial statements are exposed to exchange ratefluctuation.e. The exchange rate of one currency for another for immediate delivery (today).You observe the following quoted money market rates: Spot exchange rate 95-day Forward exchange rate 95-day USD interest rate 95-day AUD interest rate What will your profit (in USD) be 95 days from now if you borrow USD3 million today and invest in Australia and then convert back to USD? In your calculations assume 360 days per year. a. -USD 361,605.85 b. -USD 352,934.10 -USD 272,802.68 Bid Ask AUD1.185/USD AUD1.189/USD AUD1.341/USD AUD1.349/USD 5.57% p.a. 6.38% p.a. 7.71% p.a. 8.81% p.a. O c. O d. -USD322,300.31 O e. None of the options in this question.nswered Today you observe the folowing quotes: Spot EURUSD= $1.14 60 Day Forward EURUSD = $1.04 In 60 day you expec to receive 447,014 Euros. In 60 days you expect the EURUSD exchange rate to be $1.23. In 60 days the EURUSD actually is $1.03. You decided to not hedge your receivables. How many USD will you receive? 433,994.17
- Question 2 You have the opportunity to store your hard-earned money in a French or a Japanese bank account. The Japanese bank account promises an interest rate of 2% a year. If you deposit 1000 Euro in the French bank account, interests will accrue so that you will have 1105 Euros in two years. Today's exchange rate is 1 Euro to 129.60 Yen. a) What should the 1-year forward exchange rate be for you to be indifferent between the two accounts? Make sure you explain what theories justify your calculations b) If the yearly inflation rate for France is 4%, what do you expect the Japanese inflation to be?Quantitative Problem 1: Suppose that 1 Swedish krona could be purchased in the foreign exchange market today for $0.13. If the krona appreciated 9% tomorrow against the dollar, how many kronas would a dollar buy tomorrow? Do not round intermediate calculations. Round your answer to two decimal places. ____ kronas Quantitative Problem 2: Suppose the exchange rate between the U.S. dollar and the South African rand was 14 rand = $1 and the exchange rate between the U.S. dollar and the Israeli shekel was 1 shekel = $0.29. What was the exchange rate between the South African rand and the Israeli shekel? Do not round intermediate calculations. Round your answer to two decimal places. ______ rands per shekel Quantitative Problem: Assume that interest rate parity holds. In the spot market 1 Japanese yen = $0.008, while in the 180-day forward market 1 Japanese yen = $0.0088. 180-day risk-free securities yield 1.05% in Japan. What is the yield on 180-day risk-free securities in the United…Question 2 Suppose that you are working for ANZ Bank as a foreign exchange trader and are currently exploring the opportunity of engaging a cover interest arbitrage possibility. You can invest New Zealand Dollar (NZD) 10,000 or British pound (GBP) 10,000. You faced the following exchange rate and interest rate quotes. Sport rate (NZD/GBP) One-year forward rate (NZD/GBP) One-year New Zealand 2.7450-2.7550 2.6450-2.6550 Interest rate 7.75%-8.25% One-year British interest Rate 3.75%-4.25% a) Show how to realize Covered interest arbitrage (CIA), assuming you want to realize in term of NZD and determine the arbitrage profit/losses. b) the arbitrage profit/losses. Assume that you want to realize in term of GBP. Show the CIA process and determine