U.S. borrowing rate for 1 year = 9.5% U.S. deposit rate for 1 year = 8.7% Jamaica borrowing rate for 1 year = 11.3% Jamaica deposit rate for 1 year = 10.2% Jamaica dollar spot quote = $0.1763‑78 Jamaica dollar 1‑year forward quote = $0.1729‑47 What value can Alcoa lock in for its J$ 3 million receivable if it executes a forward contract today? a. $528,900 b. $524,100

U.S. borrowing rate for 1 year = 9.5% U.S. deposit rate for 1 year = 8.7% Jamaica borrowing rate for 1 year = 11.3% Jamaica deposit rate for 1 year = 10.2% Jamaica dollar spot quote = $0.1763‑78 Jamaica dollar 1‑year forward quote = $0.1729‑47 What value can Alcoa lock in for its J$ 3 million receivable if it executes a forward contract today? a. $528,900 b. $524,100

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 8P

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Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5 million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Assumptions Arbitrage funds available Spot exchange rate (kr/$) 3-month forward rate (kr/S) US dollar 3-month interest rate Danish kroner 3-month interest rate Value $5,000,000 6.1720 6.1980 4.000% a) 5.000% a) kr Equivalent kr 30,860,000 Heidi Høi Jensen generates a covered interest arbitrage profit because, although U.S. dollar interest rates are lower, the U.S. dollar is selling forward at a premium against the Danish krone. What is the amount of that profit? kr21,102 kr34,750 kr24,250 kr54,150
A UK company owes an American company $100,000 due to be paid in three months. The company wishes to avoid exchange rate risk, so borrows enough in sterling now and converts it immediately to dollars which are invested to bring in the required amount in three months' time. The following information is available: Spot rate $/£ 1.7755 - 1.7765 3-month interest rates: Sterling 3.250% US dollar 2.425% How much will the UK company have to borrow now to clear the debt in three months? A. £54,958 B. £54,989 £56,744 D. £56,775 C.
1. MSN Bank expects that the New Zealand dollar (NZD) will depreciate against the U.S. dollar (USD) from its spot rate of $.4525 to $.4225 in 120 days. The following interbank lending and borrowing rates exist: Annual borrowing rate Annual lending rate USD 7.20% 7.00% NZD 10.00% 9.00% MSN Bank considers borrowing 2 million New Zealand dollars in the interbank market and investing the funds in U.S. dollars for 120 days. Estimate the profits (or losses) that could be earned from this strategy. Should MSN Bank pursue this strategy? Show necessary calculations and discuss (50 words excluding calculations).
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Arbitrage funds available = $6,000,500; Spot exchange rate (Kr/$) = 6.1430; 3-month forward rate (Kr/$) = 6.1720; US dollar 3-month interest rate = 3.100% per annum; Danish kroner 3-month interest rate = 5.100% per annum. You can invest $6,000,500, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Using the above quotes, how much is the covered interest arbitrage profit? A) Kr58,690.96 B) $58,690.96 C) Kn,448.84 D) $1,448.84
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