Suppose the spot exchange rate for the Hungarian Forint is HUF 209/USD. The infiation rate in the US is 3.5% per year and 5.7% in Hungary. What do you predict the exchange rate will be in two years? _What-is the-expected-appreciation or depreciation of the USD over this neriod?
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- 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 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 $5 million and lower variable costs. a. Which firm has higher operating leverage? Hint: Use Degree of Operating Leverage (DOL), b. Which firm will likely have higher profits if the…
- Suppose the current USD/EUR spot exchange rate is 1.20$/ €. 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? 4Suppose 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.You use today's spot rate of the Brazilian real to forecast the spot rate of the real for one month ahead. Today's spot rate is $0.4524. Assume that you obtain the end-of-month spot exchange rates of the Brazilian real during the end of each of the last 6 months. End of Month 1 2 3 4 5 6 % $ Value of Brazilian real Use the value-at-risk method to determine the maximum percentage loss of the Brazilian real over the next month based on a 95 percent confidence level. Do not round intermediate calculations. Round your answer to two decimal places. $0.4231 0.4179 0.4192 0.4542 0.4649 0.4524 Forecast the exchange rate that would exist under these conditions. Do not round intermediate calculations. Round your answer to four decimal places.
- Suppose that the interest rates in the U.S. and Germany are equal to 5%, that the forward (one year) value of the € is F$/€ = 1$/€ and that the spot exchange rate is E$/€ = 0.75$/€. Please answer the following questions by explaining all steps of your analysis: Does the covered interest parity condition hold? Why or why not? How could you make a riskless profit without any money tied up assuming that there are no transaction costs in buying and or selling foreign exchange? PLEASE SHOW ALL STEPSthe current spot exchange rate is $1.85/£ and the three-month forward rate is $1.80/£. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be $1.82/£ in three months, assume that you would like to buy or sell £1,000,000. a) what actions do you need to take to use these rates to earn a profit? what is the expected dollar profit from speculation? b) What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be $1.76/£Assume the spot rate between the uk and the US is .€ .6789= $1 while the one year Foward rate is €.6782=$1. The risk free rate in the UK is 3.1 percent. The risk free rate in the U.S is 2.9 percent. How much profit can you earn for the year on a loan of $1,500 by utilizing covered interest abitrage?
- Suppose that the current spot exchange rate is €1.50/₤ and the one-year forward exchange rate is €1.60/₤. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount, i.e., ₤666,667, at the current spot exchange rate. Show how you can realize a guaranteed profit from covered interest arbitrage. Assume that you are a euro-based investor. Also determine the size of the arbitrage profit.If the foreign interest rate is 4%, the risk premium on domestic assets, ρ, is 18%, and the expected rate of depreciation of the domestic currency against the foreign currency is 3%, what is the domestic interest rate in percentage terms, given covered interest parity holds? [All variables have a 1-year time frame.]Suppose the risk free rate in pounds (£) is 2.67% and the risk free rate in US dollars ($) is 5.03%. The current £ to $ exchange rate is 1.43 (so £1 can be exchanged for $1.43 with the money exchanged right now). You and a broker want to agree an exchange rate now for a £ to $ conversion, but where the money will be exchanged in precisely 30 months time. What exchange rate (£ to $) should you and your broker use to ensure there is no arbitrage?