Is it profitable for a US bank to issue $200 million of one-year bonds in the US at 6.5% to invest it in one-year Brazilian government bond paying an annual interest rate of 8%, if current spot rate is 1.0537 BRL/USD and expected spot rate in a year from now is 0.9875 BRL/ USD? Does it make sense to use forward contract

Q: A bank borrows $1 million for 6-months at an annual interest rate of 6.5 percent. It invests the…

A: Borrowed amount = $ 1millionDuration = 6 monthsRate = 6.5% (Annual) Investment in Swedish kronaSpot…

Q: A Hong Kong based investment company requires USD 4 million in 40 days to close a deal in the US…

A: The spot and forward exchange rates: The rate at which a foreign currency pair trades at the current…

Q: A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds…

A: Here, Borrowing Amount is 10,000 pounds Amount paid back in year is 10,600 pounds Interest Rate of…

Q: Cal Bank believes the US Dollar will appreciate over the next five days from GHS 4.48 to GHS 4.50.…

A: Given Information Forecast of Bank: US Dollar appreciates over next five days from  GHS 4.48 to GHS…

Q: In the spot market, 1 Philippine peso can be exchanged for 2.51 Japanese yen. In the 1-year forward…

A: This is the question of interest rate parity, hereby "the forward rate premium is equal to the…

Q: The treasurer of a major U.S. firm has $43,129,609 to invest for three months. The annual interest…

A: Here, Investment amount is $43,129,609Investment Period is 3 Months U.S Interest Rate is 0.37% per…

Q: The interest on a risk free US treasury is 2.75%, while the interest on a risk free Lebanese…

A: Foreign Exchange Rate is the exchange rate at which the currency of one country exchanges with…

Q: n investor has

A: Given information : Amount available for investment $2,000,000 US interest rate 2% German…

Q: Suppose one-year US Treasury bill pays 2.28% and one-year Canadian Treasury bill pays 0.95%. The…

A: Arbitrage is a process to earn profit by purchasing one security from the market and selling another…

Q: Assume a U.S.-based subsidiary wants to raise $5 million by issuing a bond denominated in Australian…

A: Number of bonds to be issued = Amount to be raised / (Exchange rate * Face value of bond)

Q: Assume the following information regarding U.S. and European annualized interest rates: Currency…

A: Borrow euro € 20,000,000. Then conversion of € 20,000,000 to $ value is

Q: Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent…

A: The question is based on the concept of Financial Management.

Q: Assume that Stevens Point Co. has net receivables of 150,000 Singapore dollars in 90 days.  The spot…

A: Forward hedge is an agreement to buy or sell an asset at some future date at a stated price in…

Q: Currently, the USD/MXN rate is 19.7800 and the six-month forward exchange rate is 20.1700. The…

A:

Q: Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days. The…

A: Solution :  Money Market Hedge help a domestic company in reducing the exchange rate and currency…

Q: Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days. The…

A: Solution : Money Market Hedge is that technique which provide the protection against loss which…

Q: A British company has a USD 1 million payable in two months.How can the British company hedge the…

A: Hedging means techniques or procedures used to eliminate or reduce the risk exposure to due to…

Q: Assume that Hampshire Co. has net payables of 200,000 Mexican pesos in 180 days. The Mexican…

A: Money market hedge is using money market to hedge the risk from foreign currency fluctuations

Q: Company A, a British manufacturer, wishes to borrow U.S. dollars at a fixed rate of interest.…

A: Complete expense //if //Company An acquires //USD ///and ///B gets ///Sterling //= //7%+10.6%   //=…

Q: American Pharoah management is planning to make a $ 2.0 million loan to a French firm. Currently,…

A: Loan rate to be charged = LIBOR+ Default risk premium + Foreign exchange rate risk premium + Country…

Q: The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying…

A: The cost of debt is the minimum rate on the funds provided to the firm as a debt. The cost of debt…

Q: If the interest rate in USD is 1%, and is 1.2% for Canadian Dollar deposits, find the forward price…

A: The forward contract is an instrument that determines a defined rate to be paid at a predetermined…

Q: IBM is considering having its German affiliate issue a 10- year, $100 million bond denominated in…

A: The cost is the burden or amount that has to be paid to other.

Q: The 6-month interest rate in the US is 12.25% p.a. The 6-month interest rate in Canada is 15.25%…

A: Solution :  Under Interest rate Arbitrage we should take the loan from Lower rate interest country…

Q: wstar Co. expects to pay 500,000 euro in one year. Assume the annual interest rate of borrowing or…

A: Step 1 Any payment made from one country to another, as well as the market in which national…

Q: New Hampshire Corp A.  New Hampshire Corp. has decided to issue​ three-year bonds in​ Russia,…

A: Financing cost of the bond is total interest paid on bonds. Bonds are debt security which carry…

Q: Estimate the capital required under Basel I for a bank [assume it is an OECD þank ] that has the…

A: As per the Information given in the following question we find a) Time period= 2 years forward…

Q: American X wishes to borrow U.S. dollars at a fixed rate of interest. Corporation Y wishes to borrow…

A: A swap is an agreement between two parties in which the financial instruments or cashflows are…

Q: Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six…

A: Exchange rate risk is the risk of unexpected changes in the two countries' exchange rates. The…

Q: MSN Bank expects that the New Zealand dollar (NZD) will depreciate against the U.S. dollar (USD)…

A: Spot Rate USD per NZD  = 0.44 Spot Rate USD per NZD after 90 days =0.41 Borrowing Rate in NZD…

Q: Suppose that the treasurer of IBM has an extra cash reserve of $400,000 to invest for six months.…

A: Given information, Interest rate (I$)=4.3/2 =2.15% Interest rate (I€)= 3.2/2 =1.6% Spot exchange…

Q: TNB has a 10-year, ¥50 million loan outstanding with a Japanese bank. The Yen loan has a 2.5% annual…

A: A swap is a financial derivative arrangement in which two parties exchange the cash flows or…

Q: A U.S. bank can earn 6% on dollar loans or 8% on pound denominated loans to British concerns. The…

A: Solution:

Q: The current spot rate is $0.80/A$ and the six-month forward rate is $0.7775/A$. One-year interest is…

A: Here, Current Spot Rate is  $0.80/A$ Six-month forward rate is $0.7775/A$ One year interest rate in…

Q: If the interest rate in Oman is 10% and in China is 15%. Current spot exchange rate is CNY16.59/OMR…

A: Covered interest arbitrage is the method used by the investor that uses the different favourable…

Q: Diamond Bank expects that the Singapore dollar will depreciate against the dollar from its spot rate…

A: Borrowing :- 10 million (Singapore dollars) Spot rate is  $.43 to $.42 (Sigapore dollor to US…

Q: ider a U.S.-based company that exports goods to Switzerland. The U.S. Company expects to receive…

A: In this we need to calculate the forward rate based on the interest rate prevailing in both…

Q: The treasurer of IBM does not wish to bear any exchange risk. Where should he/she invest to maximize…

A: Information Provided: Cash Reserve = $100,000,000 United States interest rate = 8% (six-month)…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.