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Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Use the following information for the next 8 questions.
UCD (U.S. based MNC) will receive 250,000 euros in one year. The spot exchange rate today is $1.20 per euro. It observes that
1. The one-year interest rate for euros is 8%, and the one-year interest rate for U.S. dollars is 3%.
2. In the option market, there is one-year call option or put option available. Both options have the same exercise price of $1.18 per euro, and a premium of $0.02 per euro.
3. In the forward market, the one-year forward rate exhibits a 5% discount from the current spot exchange rate.
3 How many U.S. dollars will UCD end up receiving for its 250,000 euro receivable by using
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- Use the following information for the next 8 questions. UCD (U.S. based MNC) will receive 250,000 euros in one year. The spot exchange rate today is $1.20 per euro. It observes that1. The one-year interest rate for euros is 8%, and the one-year interest rate for U.S. dollars is 3%.2. In the option market, there is one-year call option or put option available. Both options have the same exercise price of $1.18 per euro, and a premium of $0.02 per euro.3. In the forward market, the one-year forward rate exhibits a 5% discount from the current spot exchange rate. 4 If UCD decides to use options contracts to hedge its receivables, UCD shallarrow_forwardA Canadian supplier is offering two options to his American client to pay for an equipment: paying 13,000 Canadian dollars now or paying 10,000 US dollars in 6 months. If the annual interest rate for the Canadian dollar is 5% and for the US dollar is 8%, what is the "implied" exchange rate? Question 5 options: CAD0.7581/USD. CAD1.3520/USD. CAD0.7505/USD. CAD1.3190/USD. CAD1.3325/USD. CAD0.7396/USD.arrow_forwardSuppose that the interest rates in Norway and the US are, respectively, 8% and 4%. Suppose that the spot price of the Norwegian Kroner is $0.155. A three - month forward contract on Norwegian Kroner is available for $0.156. Is there a possibility of arbitrage? If yes, how can you earn the arbitrage profit?arrow_forward
- You have $ 10 million to invest. If you invest the money in the US for six months, you can earn 2%/year. Alternatively, you can invest in Switzerland and earn 4%/year. The spot exchange rate is CHF 0.9188/$. The forward exchange rate for delivery six months hence is CHF 0.9188/$. Which method of investing do you prefer and what will be the value of your investment at maturity? Assume no transaction cost. O Invest in the US; $10,373,610 Invest in Switzerland; $10,202,013 O None of these O Invest in Switzerland; CHF 10,373,610 O Invest in the US; $10,100,502arrow_forwardSubject:- financearrow_forwardHow to calculate IRR and IRP in this question? The answer is 7% in the end, but I do not know how to get it. Consider the situation of firm A and firm B. The current exchange rate is $1.50/€. Firm A is a U.S. MNC and wants to borrow €40 million for 2 years. Firm B is a French MNC and wants to borrow $60 million for 2 years. Their borrowing opportunities are as shown; both firms have AAA credit ratings. $ $ 7% $ 8% € € 6% € 5% A B If firm B could use the forward exchange markets to redenominate a 2-year €40m 5 percent euro loan into a 2-year USD-denominated loan, what would be the interest rate?arrow_forward
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