Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is €0.7813/$. The three-month interest rate is 5.60% per annum in the United States and 5.40% per annum in France. Assume that you can borrow $1,000,000. How much can you realize via covered interest arbitrage? €10,800. $23,758. €37,757. $7,813. $37,757. $14,000.
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- Suppose that the exchange rate is 0.60 dollars per Swiss franc. If the franc appreciates 10% against the dollar, how many francs would a dollar buy tomorrow?Suppose 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 $1,000,000 or €850,000. Required: a. How will you realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars? What will be the size of your arbitrage profit? b. Assume that you want to realize profit in terms of euros. Show the covered arbitrage process and determine the arbitrage profit in euros. How will you realize a certain profit and size of your arbitrage profit? Complete this question by entering your answers in the tabs below. Required A Required B How will you realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars? What will be the size of your arbitrage profit? Note: Do not round…Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is €0.7813/$. 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 €800,000. a. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine 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. 2. ATech has fixed costs of $7 million and profits of $4 million. Its competitor, ZTech, is roughly the same size and this year earned the same profits, $4 million. But it operates with fixed costs of $5 million and lower variable costs. a. Which firm has higher operating leverage? Hint: Use Degree of Operating Leverage (DOL), b. Which firm will likely have higher profits if the…
- Suppose that the current spot exchange rate is €0.830/S and the three-month forward exchange rate is €o.815/S. The three-month interest rate is 6.00 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or €830,000. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine the size of your arbitrage profit.Suppose that the current spot exchange rate is €1.50/₤ and the one-year forward exchange rate is €1.60/₤. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount, i.e., ₤666,667, at the current spot exchange rate. Show how you can realize a guaranteed profit from covered interest arbitrage. Assume that you are a euro-based investor. Also determine the size of the arbitrage profit.Suppose that the current spot exchange rate is €1.72 per £ and the one-year forward exchange rate is €1.80 per £. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount, i.e., £581,395, at the current spot exchange rate. Required: a. If you are a euro-based investor, how can you realize a guaranteed profit from covered interest arbitrage and the size of arbitrage profit? b. How will the interest rate parity be restored as a result of the above transactions? c. If you are a pound-based investor, what is the covered arbitrage process and the size of the arbitrage profit? Complete this question by entering your answers in the tabs below. Required A Required B Required C If you are a euro-based investor, how can you realize a guaranteed profit from covered interest arbitrage and the size of arbitrage profit? Note: Do not round intermediate calculations. Round off the final answer to nearest whole dollar. Profit from…
- Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is €0.7813/$. The three-month interest rate is 5.60 percent per annum in the United States and 5.40 percent per year in France. Assume that you can borrow up to $1,000,000 or €800,000. Assume that you want to realize profit in terms of euros. Determine the arbitrage profit in euros.Suppose that the current EUR/GBP rate is 0.6668 and the one-year forward exchange rate is 0.6742. The one-year interest rate is 1.8% in euros and 3.6% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount. Suppose you are a pound-based investor. Determine the profit/loss (in GBP, no cents) if you borrow locally and invest in Euros.Suppose the current USD/EUR spot exchange rate is 1.20$/ €. At the same the euro interest rate amount to 10% per year while the dollar interest rate is 0% per year. a. What is the no-arbitrage one-year USD/EUR forward exchange? b. Suppose the one-year USD/EUR forward exchange was 1.25$/ €. How could you make money from this situation? 4
- Suppose that the current EUR/GBP rate is 0.6674 and the one-year forward exchange rate is 0.6748. The one-year interest rate is 1.4% in euros and 3.4% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount. Suppose you are a Euro-based investor. Determine the profit/loss (in EUR, no cents) if you borrow locally and invest in poundsHan Co wishes to predict the exchange rate between the dollar ($) and the euro (€), based on the following information: Spot exchange rate $1= €1.6515 Dollar interest rate 4.5% per year Euro interest rate 6.0% per year Which of the following is the one-year forward rate, using interest rate parity theory? O $1= €1.2386 O $1= €1.6752 O $1= €2.2020 O $1= €1.6281Suppose you observe that 90-day interest rate across the eurozone is 5%, while the interest rate in the U.S. over the same time period is 1%. Further, the spot rate and the 90-day forward rate on the euro are both $1.60. You have $500,000 that you wish to use in order to engage in covered interest arbitrage. To start, you exchange your $500,000 for (for when you convert the euros back to dollars), you euros, and deposit the funds in a bank in the eurozone. To lock in the exchange rate euros forward at a forward rate of $1.60.