Mr. Sami approached his FOREX trader and was informed that the spot rate is EUR 2.1565/OMR. The trader stated that this exchange rate is expected to change after one month specifically the OMR may appreciate by 19%. What will be the value of EUR against OMR? O a. EUR/OMR= 0.4591 O b. OMR 0.6491/EUR c. EUR 0.5419/OMR O d. 1 OMR= 0.4591 EUR

Mr. Sami approached his FOREX trader and was informed that the spot rate is EUR 2.1565/OMR. The trader stated that this exchange rate is expected to change after one month specifically the OMR may appreciate by 19%. What will be the value of EUR against OMR? O a. EUR/OMR= 0.4591 O b. OMR 0.6491/EUR c. EUR 0.5419/OMR O d. 1 OMR= 0.4591 EUR

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter5: Currency Derivatives

Section: Chapter Questions

Problem 41QA

See similar textbooks

Similar questions

You expect to incur a cost and make a payment of €35,000 in one year. The currentEUR/GBP exchange rate is £0.92 per euro. The current 1-year interest rates are:GBP 4%, EUR 5%. Explain what kind of risk you might be facing in the situationdescribed above. Provide an example of a forward contract that you would use inorder to hedge against the relevant exchange rate risk. Analyse the possibleoutcomes of your strategy if the EUR/GBP exchange rate in one year is (1) £0.89per euro, and (2) £0.98 per euro.
EURUSD is trading at 1.0850, US 3 monthinterest rates are 1.25% whilst Euro 3month rates are 2.25%. The exchange ratefor the long leg of a 3 month swap will be
Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months. S_0 (EUR/AUD) 0.60 Se (EUR/AUD) 0.50 (0.3) and 0.65 (0.7) Premium on AUD call option R = EUR0.02 Exercise exchange rate E = 0.62 Time to expiry 3 months What is the expected value of payables in AUD under hedge Will the option to hedge be undertaken on the basis of expected spot rate? Explain.
The current spot exchange rate is USD 1.55 / EUR, and the 3-month forward rate is USD 1.50 / EUR. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be USD 1.62 / EUR in 3 months. You would like to buy or sell EUR 1 million. What should you do in order to speculate in the forward market?
Suppose the risk free rate in pounds (£) is 5.71% and the risk free rate in US dollars ($) is 7.95%. The current £ to $ exchange rate is 1.48 (so £1 can be exchanged for $1.48 with the money exchanged right now). You and a broker want to agree an exchange rate now for a £ to $ conversion, but where the money will be exchanged in precisely 30 months time. What exchange rate (£ to $) should you and your broker use to ensure there is no arbitrage?
Suppose that the current spot exchange rate is €1.50/₤ and the one-year forward exchange rate is €1.60/₤. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount, i.e., ₤666,667, at the current spot exchange rate. Show how you can realize a guaranteed profit from covered interest arbitrage. Assume that you are a euro-based investor. Also determine the size of the arbitrage profit.
Suppose that the spot EUR in dollar exchange rate is EUR/USD = 1.0510-15. A trader bought a futures contract with a contract size of EUR 125,000, an initial margin of USD 2,600 and a maintenance margin of USD 2,400 at USD 1.0525 three days ago and had no gains or losses on the purchase day. The amount within the margin account will be cleared if no positions are taken. The settlement prices were USD 1.0512 and USD 1.0508 for the previous two trading days, respectively. The settlement price today is USD 1.0520. What is the amount within the margin account if this trader decides not to put any money aside for this margin account after purchase?