PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 27, Problem 2PS
Exchange rates Table 27.1 shows the 3-month forward rate on the South African rand.
- a. Is the dollar at a forward discount or premium on the rand?
- b. What is the annual percentage discount or premium?
- c. If you have no other information about the two currencies, what is your best guess about the spot rate on the rand three months hence?
- d. Suppose that you expect to receive 100,000 rand in three months. How many dollars is this likely to be worth?
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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?
Suppose that the exchange rate is $0.92/Euro. The dollar-denominatedinterest rate is 4% and the euro-denominated interest rate is 3%.u = 1.2, d = 0.9, T = 0.75, n = 3, and K = $1.00.a. What is the price of a 9-month European put?b. What is the price of a 9-month American put?
Chapter 27 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 27 - Exchange rates Look at Table 27.1. a. How many...Ch. 27 - Exchange rates Table 27.1 shows the 3-month...Ch. 27 - Prob. 3PSCh. 27 - Prob. 4PSCh. 27 - Prob. 5PSCh. 27 - Prob. 6PSCh. 27 - Prob. 8PSCh. 27 - Prob. 9PSCh. 27 - Prob. 10PSCh. 27 - Currency risk Companies may be affected by changes...
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