If the exchange rate at time t is Et = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. If Et+1 = €1.02/$, then your rate of return in terms of $ is ______ %, and your rate of return in terms of € is ______ %.
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If the exchange rate at time t is Et = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. If Et+1 = €1.02/$, then your
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- If the exchange rate at time t is €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. If the exchange rate at time t+1 is €1.02/$, then your rate of return in terms of $ is %Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $901, and the exchange rate will be $1.28/£. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $817, and the exchange rate will be $1.43/£. You assess that the American economy will experience a boom with a 50 percent probability and a recession with the remaining probability.Estimate the expected value of the property in GBP (as XXX.XXX)Suppose that the current exchange rate is 1.50 = £1, but it is expected to be 1.35 = £1in one year. If the current interest rate on a one-year government bond in the United Kingdom is 4%, what does the interest-rate parity condition indicate the interest rate will be on a one-year government bond in Germany? Assume that there are no differences in risk, liquidity, taxation, or information costs between the bonds.
- Suppose the interest rate is 7% on euro-denominated assets of a one year maturity and 5 percent on a dollar-denominated assets of a one-year maturity, and the current spot exchange rate for the euros in terms of the dollars is $1.50/€ . If the dollar is expected to appreciate at 4 percent rate, what is the rate of return that a French investor can expect to earn on a dollar-denominated assets? 3% 1% 5% 11%Suppose that you have one domestic production facility that supplies both the domestic and foreign markets. Assume that the demand for your product in the domestic market is Q = 2,000 – 2P and in the foreign market, demand is given by Q* = 2,000 – P*. Assume that your domestic marginal cost of production is 300. The initial real exchange rate is 1. What is the optimal quantity sold in the foreign market? Group of answer choices 710 825 750 850 None of the aboveIf the exchange rate at time t is Et = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. When the asset expires at t+1, you get paid € (x.xx round to two decimal places). If dollar appreciates by 2 % against euro, that is, Et+1 = €_______/$(x.xx round to two decimal places), then you can buy back $ (x.xx round UP to two decimal places). Question 10 options: Blank # 1 Blank # 2 Blank # 3
- Suppose that Nevada Co., a US MNC, sold consulting services to Primedia, a company based in Belarus, for 750 rubles. At the time of the transaction, the prevailing exchange rate was $0.45. If Nevada Co's bank does not desire to hold such a large amount of rubles, which of the following exchange rates might they be willing to accept when Nevada Co. seeks to exchange the rubles for dollars? A. $0.54 B. $0.43 C. $0.47 D. $0.50The current spot exchange rate is $1.95/£ and the three-month forward rate is $1.90/£. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be $1.92/£ in three months. Assume that you would like to buy or sell £1,000,000 Calculate the expected dollar profit....You are a trader at Dolphin Capital. You see the following rates for NZD (New Zealand dollars) versus AUD (Australian dollars) in the market. The spot exchange rate (NZD per AUD) is 1.1000. The six month NZD interest-rate is 3% The six month AUD interest-rate is 2% The six month market forward (NZD per AUD) is 1.1125 - 1.113. (There is a bid-ask spread in the market forward but no bid-ask spread in the spot market). Assume that six months is exactly 0.5 year. Suppose that you are allowed to borrow 1 mio NZD (i.e., 1,000,000 NZD), how much arbitrage profit can you make? Give your answer to the nearest NZD.
- Given that price level of Singapore is 105, the price level of New Zealand is 125 and the real exchange rate Q(NZD/SGD) = 1.2000, what is S(NZD/SGD)? Choose the answer that is closest to your calculation. a. 0.9921 b. 0.7000 c. 1.0080 d. 1.4286In France, one kilogram of macadamia nuts costs 10.5Euro and 10 Dollars in Canadian in Canada. According to the law of one price, the expected exchange rate between the Euro and the Canadian would be_____ 1.5Euro/$ 0.12Dollar/Euro 1.67 Dollar/Euro 0.67 Euro/DollarImagine you are a German investor trying to decide whether to buy American or European bonds. A ten-year bond issued by America’s Treasury today offers about 3%; German bonds return only 1.2%. But buying American means taking a gamble on the euro-dollar exchange rate. You are interested in the return in euros. The bond issued in the US will be attractive only if the extra yield exceeds any expected loss due to swings in currency markets. This thinking explains why the dollar has recently soared against the euro. In July 2022 the dollar reached a one-for-one exchange rate with the euro for the first time since 2002. Is it always true that a currency appreciates in value when the interest rate it offers increases relative to foreign interest rates? Explain.