Porter makes three year loans which include inflation protection. The annual interest rate compounded continuously that must be paid is 3.2% plus the rate of inflation. The US government borrows 100,000 for three years from Porter. The actual annual inflation rate during the first year was 2.4% compounded continuously. The actual annual inflation rates for the second and third years respectively was 2.6% and 4.2% compounded continuously. The US government is considered a risk free borrower which means there is no chance of default. a. Calculate the amount that the US government will owe at the end of three years.

Porter makes three year loans which include inflation protection. The annual interest rate compounded continuously that must be paid is 3.2% plus the rate of inflation. The US government borrows 100,000 for three years from Porter. The actual annual inflation rate during the first year was 2.4% compounded continuously. The actual annual inflation rates for the second and third years respectively was 2.6% and 4.2% compounded continuously. The US government is considered a risk free borrower which means there is no chance of default. a. Calculate the amount that the US government will owe at the end of three years.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 8P

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Porter makes three year loans which include inflation protection. The annual interest rate compounded continuously that must be paid is 3.2% plus the rate of inflation. The US government borrows 100,000 for three years from Porter. The actual annual inflation rate during the first year was 2.4% compounded continuously. The actual annual inflation rates for the second and third years respectively was 2.6% and 4.2% compounded continuously. The US government is considered a risk free borrower which means there is no chance of default. c. The annual interest rate compounded continuously that Porter wants to earn to defer consumption is 3.5%. What is the annual cost compounded continuously of inflation protection. (Enter answer as a decimal and round to the nearest 3 decimal places.)
Porter makes three year loans which include inflation protection. The annual interest rate compounded continuously that must be paid is 3.2% plus the rate of inflation. The US government borrows 100,000 for three years from Porter. The actual annual inflation rate during the first year was 2.4% compounded continuously. The actual annual inflation rates for the second and third years respectively was 2.6% and 4.2% compounded continuously. The US government is considered a risk free borrower which means there is no chance of default. a. Calculate the amount that the US government will owe at the end of three years. (Round your answer to the nearest 2 decimal places.)
Sun Bank USA has purchased a 8 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.625/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.588/A$1 and $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whole number. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $200,000 (disregarding any change in principal values)?…
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)–denominated deposit for the equivalent amount and maturity at an annual rate of 10%. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $200,000?
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.715/A$1 and $1.520/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars. Round your final answer to the nearest whole dollar. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest…
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)–denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.715/A$1 and $1.520/£1, respectively?
Suppose that the U.S. interest rate on one year Treasury notes was 4.5%. We will use this as the annual interest rate in the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.1%. The spot rate is 1.0162 EUR/USD.. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage? If so, what would be the total profit if we borrowed $20 million for 3 months? A. YES- $27,395.21 would be the profit B. YES- $29,385.41 would be the profit C. YES- $31,695.53 would be the profit D. YES- $33,875.42 would be the profit E. NO- there is no opportunity for a profit
Sun Bank USA has purchased a 24 million one-year Australian dollar loan that pays 15 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.625/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 13 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.588/A$1 and $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whole number. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $180,000 (disregarding any change in principal values)?…
Suppose that the U.S. interest rate on one year Treasury notes was 4.7%. We will use this as the annual interest rate in the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.2%. The spot rate is 1.0162 EUR/USD. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage? If so, what would be the total profit if we borrowed $25 million? OA YES-$27,395.21 would be the profit OB. YES-$33,385.41 would be the profit OC. YES-$37,342.89 would be the profit OD. NO- there is no opportunity for a profit
8. The CFO of Vaimato Industries needs to borrow money (a one year loan) in the coming months to support the start up of a new project. The interest rate in the U.S. for a dollar loan was quoted as 14 percent (before taxes). A euro loan is also available at an interest rate of 8.60 percent. In both cases the marginal tax rate is 40 percent. The spot exchange rate (American terms) is $1.2135/€ and the one - year forward rate is $1.2500/€. What is the after-tax cost of debt for the cheapest source of funds? a. 14.00% b. 13.87% c. 10.55% d. 8.40% e. 8.32%
A U.S. bank converted $1 million to Swiss francs to make a Swiss franc loan to a valued corporate customer when the exchange rate was 1.2 francs per dollar. The borrower agreed to repay the principal plus 6 percent interest in one year. The borrower repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate was 1.25 francs per dollar. What was the bank's dollar rate of return? 1.53% 1.76% 1.85% 2.01% On July 15, 2022, you convert 480,000 U.S. dollars to Japanese yen in the spot foreign exchange market at the spot rate of ¥104.91/$ and purchase a six-month forward contract to convert yen into dollars at the forward rate of $0.0095320/¥. How much will you receive in U.S. dollars at the end of six months? $497,668 $502,388 $458,773 $480,001
XYZ Corporation, located in the United States, has an accounts payable obligation of ¥1500 million payable in six months to a bank in Tokyo. The current spot rate is ¥116/$1.00 and the six month forward rate is ¥109/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. a) What is the future dollar cost of meeting this obligation using the money market hedge a. $92,307. b. $ 19582168.89 c. $13054779.26 d. $ 6589854.111