You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.60 - €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 - €1.20 how much money can an astute trader make? No arbitrage is possible O $1,160,000 $41,667 $40,000

You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.60 - €1.00 and the dollar-pound exchange rate is quoted at $2.00 = £1.00. If a bank quotes you a cross rate of £1.00 - €1.20 how much money can an astute trader make? No arbitrage is possible O $1,160,000 $41,667 $40,000

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

If you can borrow $1,000,000, determine if there is an arbitrage opportunity. If any arbitrage opportunity exists, what is the final net CF to you assuming you conduct a covered interest parity strategy to exploit any arbitrage opportunity? You have to following information: Spot exchange rate = $1.0500/€. IUSD: 5% per annum U.S. IEUR: 3% per annum in Euro zone F1 yr: $1.0704/€
5
Urgent!!
Suppose the average interest rate on euro bonds is 4% and the average interest rate on U.S. dollar bonds is 6%. Which should the investor choose? The euro bond, because European economies are usually more stable Neither, because bonds have high default rates in both countries. Both, because an investor will choose some euro bonds and some U.S. bonds to diversify O It is not possible to answer without information on exchange rates.
O either positive or negative Question 9 If Tony Stark provides consulting services to a firm in Sweden, this is then counted as a O credit in the current account debit in the current account credit in the capital account O debit in the capital account Question 10 If Dominic Toretto purchases a Toyota Supra that comes from Japan, this is then counted as a O credit in the current account O debit in the current account O credit in the capital account O debit in the capital account MacBook Air
Which of the following are the major players in the foreign exchange market? O a. Corporates O b. Commercial banks O C Exchange brokers O d. Central bank of the country
A family from the US is planning a vacation in Peru for the winter holidays. The current exchange rate is $1 US buys 4.04 Peruvian soles. If the family figures that they need exactly 15,392.4 soles in Peru for their vacation, how many US dollars should they convert? O $3,444 $3,810 $4,112 $4,440
Using the table shown, what is the most current 6-month forward exchange rate shown for British pounds? Use a direct quote from a U.S. perspective and assume today is Tuesday. Country Britain (Pound) £ 1 Month Forward 3 Months Forward 6 Months Forward O $0.6024-£1.00 $1.66 €1.00 O $1.61-£1.00 $1.60-£1.00 O $1.00-£0.6024 U.S. $ equiv. Tuesday Monday 1.6000 1.6100 1.6300 1.6100 1.6300 1.6600 1.6600 1.7200 Currency per U.S. $ Tuesday Monday 0.6250 0.6211 0.6173 0.6024 0.6211 0.6173 0.6024 0.5814
Purchasing-power parity (PPP) theory states that exchange rates would need to equalize the prices of goods in any two countries. For the dollar price Activity Frame o be the same in both countries, a U.S. citizen would need to be able to convert $5.74 into exactly GBP 3.29. To find the exchange rate at which hamburger purchasing power is the same in both countries, divide the price in the United States by the price in the United Kingdom: PPP Exchange Rate (U.S. Dollars per British pound) = $5.74 GBP 3.29 = $1.74 per pound The exchange rate that would have equalized the dollar price of a Big Mac in the United States and the Euro area (that is, the PPP exchange rate for Big Macs) is . This change would mean that the euro had against the dollar. If Big Macs were a durable good that could be costlessly transported between countries, which of the following would present an arbitrage opportunity? Check all that apply. Exporting Big Macs from the Euro area to the United States Exporting Big…
If one Canadian dollar buys US$0.85, and one Euro buys US$1.20, then one Euro should buy O a. C$1.02 O b. C$1.41 O c. C$2 O d. C$1.64
6
4. Currently, the spot exchange rate is $0.85/A$ and the one-year forward exchange rate is $0.81/A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,176,471, which is equivalent to $1,000,000 at the current spot rate. a. Determine if IRP is holding between Australia and the United States. b. If IRP is not holding, explain in detail how you would realize certain profit in U.S. dollar terms. c. Explain how IRP will be restored as a result of arbitrage transactions you carry out above.