Today the one-year forward rate for the Swiss franc is SF1393/S. The spot rate is 511521/ The interest rate on a risk free asset in Switzerland is 2.43 percent if interest rate parity exists, what is the one-year risk-free rate in the US? Multiple Choice O129% 10% 0358% 2.86% 3366

Today the one-year forward rate for the Swiss franc is SF1393/S. The spot rate is 511521/ The interest rate on a risk free asset in Switzerland is 2.43 percent if interest rate parity exists, what is the one-year risk-free rate in the US? Multiple Choice O129% 10% 0358% 2.86% 3366

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter7: International Arbitrage And Interest Rate Parity

Section: Chapter Questions

Problem 40QA

See similar textbooks

Related questions

Q: 3. A firm borrowed $1.8 million at 10% per year interest. If the firm repaid the loan in a one…

A: Amount of payment can be calculated as: = Amount borrowed * (1 + rate)^ periods

Q: 3.) Engr. De Ocampo is planning to buy a condominium. If he is to pay 100k per month with a down…

A: As per Bartleby honor code, when multiple questions are asked, the expert is required only to solve…

Q: Please provide an example of a digital platform and discuss its prospects for taking business from…

A: Digital platform is the platform in which there is facility that a person cab do shopping, banking,…

Q: could you explain computation (1 i )how to find the growth rate and write the formula cle

A: The explanation about the growth rate is given as follows:

Q: ABC common stock is expected to have extraordinary growth in earnings and dividends of 26% per year…

A: The current share price of a stock can be derived from the future earning potential of the stock. A…

Q: Inc, published its financial statements for 2020. Assets: 1 000 million Equity: 1 000 million How…

A: Capital structure refers to the mix of source from where the long term funds required in a business…

Q: Kindly provide a detailed calculation for below values.

A: Present Value: It represents the present worth of the future amount of cash flow and is estimated…

Q: 1 A i). What is leasing? ii). Discuss five important benefits of leasing. iii). Discuss five…

A: Leasing is a process according in which a business or firm can obtain the use of fixed assets in…

Q: If a firm has preferred stock, the after-tax weighted average cost of capital (WACC) equals:…

A: The Weighted average cost of capital(WACC) refers to the financial ratio that calculates the overall…

Q: 8. Mr. Diamond expects to invest $1000 per year for each of the next 20 years in an investment plan…

A: Here we will use the concept of time value of money. As per the concept of time value of money the…

Q: A portfolio manager creates the following portfolio: Security Security Weight Expected Standard…

A: Standard deviation of portfolio is dependent on the weight of each security in the in the portfolio…

Q: A firm with a below industry net profit margin can improve its return on total assets by: a.…

A: Net profit margin: Net profit margin evaluates how much net profit a firm makes per dollar of…

Q: Making payments on time is part of (a. payment history b. amount owed c. length of credit history d.…

A: The answer is option a. payment history Payment history is indeed a history of all payments made to…

Q: (b) A design company seeks a return on investment of 6. The wafer costs $2500 and holds 450 gross…

A: Data given:: Wafer costs =$2500 Gross die per wafer = 450 Die yield per wafer =70% Packaging…

Q: James Clark is a foreign exchange trader with Citibank. He notices the following quotes. (12’) Spot…

Q: You have 3 accounts: Account A has a $100 balance and a $300 credit limit. Account B has a $100…

A: The debt-to-credit ratio also referred to as the credit utilization rate is the percentage of the…

Q: Debt payments of $1,650 and $2,400 are due in five months and nine months, respectively. What single…

A: Time value of money (TVM) refers to the method used to measure the amount of money at different…

Q: A firm earns $3550 million in profits and pays $2480 million in dividends for the year. The firm…

A: The dividend is part of the profits given by the company to its shareholders. Preferred…

Q: 2. A bridge connecting two towns costs $15,000,000, has an average annual operating cost of $450,000…

A: The restoration or repair of a major part of the machine is known as an overhaul. Generally, the…

Q: Company A's historical returns for the past three years are 6 percent, 15 percent, and 15 percent.…

A: The capital asset pricing model is a financial concept that is widely used. In this model, the…

Q: What term refers to the uncertainty inherent in projections of future ROIC? (15-3) Firms with…

A: ROIC refers to return on invested capital. This is a profitability ratio that measures the quantum…

Q: How much interest is earned at 2-% if an amount of P10,500 was invested on October 3, 2021 and will…

A: Time value of money (TVM) refers to the method used to measure the amount of money at different…

Q: r things being equal, expected income can be used as direct measure of well-being (Choose the best…

A: The expected income depends on the risk behavior of person and it depends on risk taking ability of…

Q: How much money is invested at each rate?

A: Investment: It represents an asset that is acquired for the purpose of income generation or price…

Q: How much will P54,200 be in 24 months at 4-% compounded monthly? 4 A) P388,579.66 B) P59,590.33 C)…

A: The time value of money concept is to determine the future value and present value of a single…

Q: 12. Suppose the current exchange rate is $1.84/£, the interest rate in the United States is…

A: Black-Scholes formula It is a mathematical model for the dynamics of a financial market that…

Q: Explain 2 differences between bonds and shares.

A: Solution:- Bond is a form of debt issued by a company to raise debt from the market. On the other…

Q: 1. What is Private Equity? 2. What is Sovereign Wealth Funds? 3. What is Hedge Funds?

Q: You planned to borrow $575,000 for a house at 2.9% interest for 30 years. You find a house that you…

A: A loan is a sum of money obtained from outside sources such as banks and repaid over time in fixed…

Q: Calculate the effective rate (APY) of interest for 1 year. (Do not nearest hundredth percent.)

A: Effective Rate (Annual Percentage Yield): It is the effective rate of return to the investor on…

Q: The process by which a loan, or more commonly a group, or pool, of loans, is packaged into a deal…

A: The question is related to Financing.

Q: What is CML? a. The CAL defined by the market portfolio. b. All of them. C. The steepest capital…

A: The Capital Asset Pricing Model (CAPM) is a mathematical model that depicts the relationship between…

Q: 17) What is the total risk (measured by standard deviation) of a two-asset portfolio made up of:…

A: Solution:- Total risk is measured by standard deviation of a portfolio. It means that how much will…

Q: A person plans to make a series of equal quarterly deposits of $1,500 each into a savings account,…

A: Equal Quaterly deposits are of $1,500 Interest rate is 6.5% compounded daily Time period is 10 years…

Q: Describe in 1-2 sentences One of the Covid Relief acts that was passed in 2020/2021 and how it…

A: The outbreak of the COVID pandemic spelled disaster for the economy. The economy came to a grinding…

Q: What is the yield on a corporate bond with a $1000 Face value purchased at a discount Price of $850,…

A: Bonds are long-term financial debt for the company. Bonds help the company to raise funds and in…

Q: purpo Badgeting 3. Keeping track of all income and expenses is very important to achieving your…

A: Financial objectives plays a vital role in the economy , As if we maintain our finances then we will…

Q: nager is faced with an investment proposal of Rp. 100,000,000, - with a period of 4 years and cash…

A: The net present value is the difference between the present value of cash flow to the initial…

Q: ou have a firm that specializes in basalt type of concrete. A consultant provides you a quote that…

A: The systematic planning and controlling of the overall operating costs of the company is known as…

Q: Given the following correlation matrix, a risk-averse investor would most likely prefer which of the…

A: Risk averse investor is the one who prefers to avoid loss from the investment. Therefore, these type…

Q: You have 3 accounts: Account A has a $100 balance and a $300 credit limit. Account B has a $100…

A: Credit Limit: A credit limit is the maximum amount of credit that a lender provide to the borrower.…

Q: D4) The one-year spot rate is 2.0%, the two-year spot rate is 2.8% and the three-year spot rate is…

A: Coupon Payment = Face Value x Coupon rate Price of the Bond= Present value of Coupon Payment +…

Q: What is the difference between between beta and standard deviatio

A: In the world of finance in general and investing in particular we often use the concepts of beta as…

Q: MM Proposition II states that: I) the expected return on equity is positively related to leverage;…

A: MM has given two basic proposition one is related to value of firm and second is about the cost of…

Q: Use the following table, Present Value of an Annuity of 1 Period 8% 9% 10% 1 0.926…

A: The question is related to Capitalised Budgeting. The Net Present Value is calculated with the help…

Q: You have 1 account: The balance owed is $625 and a $2500 credit limit. What is your…

A: Debt-to-credit ratio = Debt availed/Credit limit

Q: Which of the following statement(s) is/ are correct? Select one or more: Portfolio standard…

A: Portfolio is the combination of different securities. Portfolio Standard Deviation is a measure of…

Q: Over the past 4 years an investment returned 0.1, -0.12, -0.08, and 0.13. What is the standard…

A: Return in year 1 is 0.1 Return in year 2 is -0.12 Return in year 3 is -0.08 Return in year 4 is 0.13…

Q: Who first developed portfolio theory? Multiple Choice: A) Richard Brealey B) Franco…

A: Answer - An economist named Harry Markowitz, a Nobel Prize winner is the father of modern…

Q: Mukesh Ltd has received £65,661 after investing for 6 years at an annual interest rate of 6.5%. What…

A: Solution:- We know, when some amount is invested somewhere, it earns interest on it. The amount…

Concept explainers

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.

Question

Today the one-year forward rate for the Swiss franc is SF11393/s. The spot rate is 511521/5. The interest rate on a risk free asset in Switzerland is 2.43 percent. If interest rate parity exists, what is the
one-year risk-free rate in the US?
Multiple Choice
129%
3:08
358%
2.66%
1365
O

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

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 answer the following questions. U.K. Pound 6-months forward (£) Japan Yen 6-months forward () Switzerland Franc 6-months forward (SF) Currency per U.S. $ 0.5135 0.5204 108.21 106.96 1.0492 1.0478 Suppose interest rate parity holds, and the current six-month risk-free rate in the United States is 4.6 percent. What must the six-month risk-free rate be in Great Britain? 4
The one-year forward rate for the Swiss franc is SF1.1505/$. The spot rate is SF1.1626/$. The interest rate on a risk-free asset in Switzerland is 2.71 percent. If interest rate parity exists, what is the one-year risk-free rate in the U.S.? Multiple Choice 1.64% 3.32% 3.55% 3.03% 3.79%
If one year forward rate is EUR2.1830/OMR and interest rate for EURO is 6% per annum and for OMR is 8% per annum. What should be spot exchange rate if interest rate parity holds and OMR is the Home currency? EUR2.14257/OMR USD2.0819/OMR USD2.22418/OMR None of these
Use the information below to answer the following questions. Currency per U.S. $ 1.2380 1.2353 Australia dollar 6-months forward Japan Yen 6-months forward U.K. Pound 6-months forward 100.3600 100.0200 .6789 .6784 Suppose interest rate parity holds, and the current six month risk-free rate in the United States is 5 percent. Use the approximate interest rate parity equation to answer the following questions. a. What must the six-month risk-free rate be in Australia? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What must the six-month risk-free rate be in Japan? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Australian risk-free rate b. Japanese risk-free rate c. Great Britain risk-free rate c. What must the six-month risk-free rate be in Great Britain? (Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) % % %
Use the information below to answer the following questions. Canada dollar 6-months forward Japan Yen 6-months forward U.K. Pound 6-months forward Currency per U.S. $ 1.2375 1.2358 100.3100 100.0700 0.6794 0.6779 Suppose interest rate parity holds, and the current risk-free rate in the United States is 4 percent per six months. Requirement 1: What must the six-month risk-free rate be in Canada? [Select] [Select] Requirement 2: What must the six-month risk-free rate be in Japan? [Select] Requirement 3: What must the six-month risk-free rate be in Great Britain?
A3) Spot rate for the South African rand to Euro is, S0 = R10.2992/€. Interest rate in the Eurozone is 10.95 percent. Interest rate in South Africa is 2.12 percent. Calculate the 6-month forward rate that would prevent covered interest arbitrage? A. R9.3898 B. R9.8444 C. R10.7539 D. R11.2086
Suppose the spot price of a euro in dollars is $0.932. The U.S. interest rate for 90 days is 6.875% and the euro rate for 90 days is 4.450%. All interest calculations are done as rate times (#days/360). a. What is the rate for a 90-day forward contract on the euro? b. Suppose the euro forward contract is currently quoted at $0.95. What type of transaction(s) should an arbitrageur conduct to take advantage of the apparent mispricing Only typed answer
Assume 1 euro = $1.1 in the 180-day forward market and the 180-day risk-free rate is 8% in the U.S. and 4% in France. What is the spot rate? Question 3 options: a. 1.1902 b. 1.0788 c. 1.1523 d. 1.1002
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.
The forward rate of the Swiss franc is $0.50. The spot rate of the Swiss franc is $0.48. The following interest rates exist: U.S. Switzerland 360-day borrowing rate 7% 5% 360-day deposit rate 6% 4% You need to purchase SF200,000 in 360 days. If you use a money market hedge, the amount of dollars you need in 360 days is ______. A. $101,904 B. $101,923 C. $96,914 D. $98,770
You can buy or sell the £ spot at $1.98 to the pound. You can buy or sell the pound one-year forward at $2.01 to the pound. If U.S. annual interest rates are 5%, what must be the approximate one-year British interest rate if interest rate parity holds? A. 4.00% B. 2.75% C. 5.25% D. 3.48%
The current USD/EUR exchange rate is [de] dollar per euro. The one-year forward exchange rate is [fe]. The one-year USD interest rate is [rus]% p.a. semiannually compounded. Estimate the one-year EUR interest rate (p.a. semiannually compounded, stated in percent). Inputs: de, fe, rus = 1.85, 1.75, 1.31 Tip: Use the CIP