n 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/$) be in 90 days? Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realize in 90 days?
n a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates Spot exchange rate: Yen 106/$ 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/$) be in 90 days? Would Ari make a profit by borrowing 1 million US dollar and investing in the money markets? If yes, how much profit would Ari realize in 90 days?
Chapter21: Risk Management
Section: Chapter Questions
Problem 3P
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Question
In a daily meeting, the Chief Financial Officer (CFO) gave Ari the following table of market rates
|
Spot exchange rate: |
Yen 106/$ |
|
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
- 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?
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