2. Shinzo Kamada, Credit Suisse (Tokyo), observes that the ¥/$ spot rate has been holding steady, and both dollar and yeninterest rates have remained relatively fixed over the past week. Shinzo wonders if he should try an uncovered interestarbitrage (UIA) and thereby save the cost of forward cover. Many of Shinzo's research associates and their computermodels are predicting the spot rate to remain close to ¥108.00/$ for the coming 180 days. Using the data as givenbelow, analyze the UIA potential. (Show all the steps and calculations)Arbitrage funds availableSpot rate (¥/$)180-day forward rate (¥/$)Expected spot rate in 180 days (¥/$)180-day U.S. dollar interest rate180-day Japanese yen interest rate$6,000,000108.70107.80108.004.800%3.400%

Interest rate parity - It states that interest rates across the globe should be the same i.e.…

Answered: 2. Shinzo Kamada, Credit Suisse…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 2P

See similar textbooks

Similar questions

Shinzo Kamada, Credit Suisse (Tokyo), observes that the ¥/$ spot rate has been holding steady, and both dollar and yen interest rates have remained relatively fixed over the past week. Shinzo wonders if he should try an uncovered interest arbitrage (UIA) and thereby save the cost of forward cover. Many of Shinzo's research associates and their computer models are predicting the spot rate to remain close to ¥108.00/$ for the coming 180 days. Using the data as given below, analyze the UIA potential Arbitrage funds available $6,000,000 Spot rate (¥/$) 108.70 180-day forward rate (¥/$) 107.80 Expected spot rate in 180 days (¥/$) 108.00 180-day U.S. dollar interest rate 4.800% 180-day Japanese yen interest rate 3.400%
hinzo Kamada, Credit Suisse (Tokyo), observes that the ¥/$ spot rate has been holding steady, and both dollar and yen interest rates have remained relatively fixed over the past week. Shinzo wonders if he should try an uncovered interest arbitrage (UIA) and thereby save the cost of forward cover. Many of Shinzo's research associates and their computer models are predicting the spot rate to remain close to ¥108.00/$ for the coming 180 days. Using the data as given below, analyze the UIA potential. (Show all the steps and calculations) Arbitrage funds available$6,000,000Spot rate (¥/$)108.70180-day forward rate (¥/$)107.80Expected spot rate in 180 days (¥/$)108.00180-day U.S. dollar interest rate4.800%180-day Japanese yen interest rate3.400%
John Ayena, a trainee at an investment banking firm, is trying to get an idea of what real rate of return investors are expecting in today’s marketplace. He has looked up the rate paid on 3-month U.S. Treasury bills and found it to be 5.5%. He has decided to use the rate of change in the Consumer Price Index as a proxy for the inflationary expectations of investors. That annualized rate now stands at 3%. On the basis of the information that John has collected, what estimate can he make of the real rate of return?
Microsoft corporation wants to reduce its interest rate exposure and will need to borrow $1,000,000 in six months' time for a 6-month period. The interest rate at which it can borrow today is 6-month LIBOR plus 0.5 percent. Let us further assume that the 6-month LIBOR currently is at 0.89465%, but the company’s treasurer thinks it might rise as high as 1.30% over the forthcoming months.The treasurer choses to buy a 6x12 FRA in order to cover the period of 6 months starting 6 months from now. He receives a quote of 0.95450% from his bank and buys the FRA for 1,000,000 $ on April 8th.Characteristics of the FRA known on trade date:Trade date 08/04/2019Spot date (t+2) 12/04/2019Fixing date 10/10/2019Settlement date 12/10/2019Maturity date 12/04/2020 Contract period: 182 daysFRA rate 0.95450% On the fixing date (October 10th, 2019), the 6-month LIBOR fixes at 1.26222, which is the settlement rate applicable for the company's FRA. a) Calculate and interpret the interest differential, did the…
A small country is experiencing hyperinflation of 56% per month. A) By what percent have prices climbed after 5 months? B) If an item currently costs $14, how much will it cost after 1 year of such inflation? Text so i can copy it
In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates: Spot exchange rate: Yen 106/$ U.S. dollar interest rate per annum 10% Japanese Yen interest rate per annum 6% and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dolla rby 3.46%in 90 days.Assume there are 360 days in a year, and all interest rates are simple interest rates.If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: 1) What would the spot exchange rate (Yen/$) be in 90 days? 2) Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realise in 90 days? If no, explain why.
In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates Spot exchange rate: Yen 106/$ U.S. dollar interest rate per annum 10% Japanese Yen interest rate per annum 6% and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates. If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: What would the spot exchange rate (Yen/$) be in 90 days? Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realize in 90 days?
In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates Spot exchange rate: Yen 106/$ U.S. dollar interest rate per annum 10% Japanese Yen interest rate per annum 6% and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates. If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: b.1) What would the spot exchange rate (Yen/$) be in 90 days? b.2) Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realize in 90 days? If no, explain why. Thank You
In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates: Spot exchange rate: Yen 106/$ U.S. dollar interest rate per annum 10% Japanese Yen interest rate per annum 6% and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates.If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: 1) What would the spot exchange rate (Yen/$) be in 90 days? 2) Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realise in 90 days? If no, explain why. Please answer 2). Thanks
Suppose that North bank currently charges a 3.5% fixed interest rate on a six -year auto loan and pays a 2.5% interest rate to customers who buy 6-month CDs. Suppose that at the end of the six-month period depositors roll over the funds in the CD for another six months. Then the interest rate spread is ? Suppose now that market interest rates increase by 0.4%. This means that North bank has to pay a (Higher, lower, the same) interest rate on CDs when they mature, while charging (Higher, lower, the same) interest rate on the six -year auto loans. What will happen to the interest rate spread? (choose 1) It decreases to 0.6% and the North bank's interest income rises. It becomes equal to 2.9% and the North bank's interest income rises. It increases to 2.5% and the North bank's interest income falls. It decreases to 0.6% and the North bank's interest income falls.
In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market ratesSpot exchange rate: Yen 106/$U.S. dollar interest rate per annum 10%Japanese Yen interest rate per annum 6%and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates. If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true: Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realize in 90 days?If no, explain why.
In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market ratesSpot exchange rate: Yen 106/$U.S. dollar interest rate per annum 10%Japanese Yen interest rate per annum 6%and told Ari that the company’s financial analyst expected the Japanese Yen to depreciate against the U.S. dollar by 3.46% in 90 days. Assume there are 360 days in a year, and all interest rates are simple interest rates. If the financial analyst’s prediction about the US dollar and Japanese Yen turned out to be true:What would the spot exchange rate (Yen/$) be in 90 days?

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

International Financial Management

Finance

ISBN:

9780357130698

Author:

Madura

Publisher:

Cengage

Business/Professional Ethics Directors/Executives…

Accounting

ISBN:

9781337485913

Author:

BROOKS

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

International Financial Management

Finance

ISBN:

9780357130698

Author:

Madura

Publisher:

Cengage

Business/Professional Ethics Directors/Executives…

Accounting

ISBN:

9781337485913

Author:

BROOKS

Publisher:

Cengage

SEE MORE TEXTBOOKS