se the expected spot rate (after 1 year) for euros (in terms of dollars) is $1.50, the current interest rate on euro deposits is 4.5%, and the current interest rate on dollar deposits is 5.5%. What current spot rate would satisfy the uncovered interest parity (UIP) equation? a. $1.65 b. $1.50 c. $1.25 d. $1.485
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- Q1-17 Suppose that the 3-month interest rate in New York is 4% and the 3-month interest rate in London is 3%, and that the spot rate is $2.00/£ and the 3-month forward rate is $2.10/£. In this situation, there is an incentive for short-term interest arbitrage funds to flow: a. from New York to London. b. from London to New York. c. neither from New York to London nor from London to New York. d. from New York to London, from London to New York, or in neither direction; an answer cannot be determined without more information.Q6. A financial institution has borrowed a one-year $20 million Eurodollar deposit at an annual interest rate of 1.5 percent. It has invested these proceeds in one-year Euro (€) bonds at an annual rate of 2.5 percent after converting them at the current spot rate of €1.22/$. Both interest and principal are paid at the end of the year. What is the spread earned by the bank at the end of the year if the exchange rate remains at €1.22/$? a) 1.50 percent b) 2.50 percent c) 0.50 percent d) 1 percent e) 2.00 percentQ6: What is the effective yield of a 45-day deposit in euros, with a nominal rate quoted of 4.6%?
- Q1-11 Suppose that a speculator notes that the current 3-month forward rate on the euro is $1.26 and the speculator expects that, in 3 months, the euro will have a value of $1.30. In this situation, the speculator would _______ euros on the forward market, and this activity ______ for the speculator. a. buy / involves risk b. buy / involves no possible risk c. sell / involves risk d. sell / involves no possible riskQ5 If the 60-day interest rates (simple, p.a.) are 3% at home (usd) and 4% abroad (eur) and the spot rate moves from 1.000 to 1.001.(a) What is the actual change in the forward rate? (b) What is the predicted change in the swap rate computed from the return differential?(c) What is the actual change in the swap rate?Finance The practice of investing in a currency that offers the higher return on a covered basis is known as covered interest arbitrage. Currently, the six month Euro Libor rate is -0.52% per annum, and the six month TR libor rate is 18.06% per annum. If the spot rate is 8.5013TRY per Euro and the forward rates are as stated below, Forward Points EURTRY 1M FWD 1003 EURTRY 3M FWD 3411 EURTRY 6M FWD 7096 EURTRY 1Y FWD 14507 a) What is 6M Forward rate for euro? b) Do you have a covered interest arbitrage opportunity? c) If yes, how? d) How much is the arbitrage amount you can enjoy if you can borrow upto 1 million euros or its equivalent Turkish Lira?
- Q3. Bank USA recently purchase $10million worth of euro denominated one-year CDs that pay 10% interest annually. The current spot rate of U.S. dollars for euros is $1.30/€1. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? What will be the return on the one-year CD if the dollars appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.2/€1? What will be the return on the one-year CD if the dollars depreciates relative to the euro such that the spot rate of U.S. dollars for euro at the end of the year is $1.4/€1?Required:a. Calculate the dollar proceeds from the FI’s loan portfolio at the end of the year, the return on the FI’s loan portfolio, and the net return for the FI if the pound spot foreign exchange rate falls to $1.20/£1 and the lira spot foreign exchange rate falls to $0.156/TL1 over the year.b. Calculate the dollar proceeds from the FI’s loan portfolio at the end of the year, the return on the FI’s loan portfolio, and the net return for the FI if the pound spot foreign exchange rate rises to $1.40/£1 and the lira spot foreign exchange rate rises to $0.17/TL1 over the year.c. Suppose that the FI funds the $250 million U.S. loans with $250 million one-year U.S. CD at a rate of 4 percent; funds $150 equivalent British loans with $150 million equivalent one-year pound CDs at a rate of 5 percent; funds $100 million equivalent Turkish loans with $100 million equivalent one-year Turkish lira CDs at a rate of 6 percent. Assume no other changes. What will the FI’s balance sheet look like…V5. Suppose that some time ago a financial institution agreed to receive 6-month LIBOR and pay 4% per annum (with semi-annual compounding) on a notional principal of $200 million. The swap has a remaining life of 1.25 years; assume that the payments are to be exchanged every 6 months. The LIBOR rates with continuous compounding for 3-month, 9-month, and 15-month maturities are 3.8%, 4.2%, and 4.4%, respectively. The 6-month LIBOR rate at the last payment date was 3.9% (with semiannual compounding). Suppose that the day count convention is ignored. Calculate the current value of the swap (in terms of bond prices) to the financial institution.
- Only typed answer and please don't use chatgpt Suppose the interest rate on 6-month treasury bills is 7 percent per year in the United Kingdom and 4 percent per year in the United States. Also, today’s spot exchange price of the pound is $2.00 while the 6month forward exchange price of the pound is $1.98. By investing in U.K. treasury bills rather than U.S. treasury bills, and covering exchange-rate risk, U.S. investors earn an approximate extra return for 6 months of: a. 0.5 percent. (this is the answer; please show how to solve) b. 1.5 percent. c. 3.0 percent. d. 4.0 percent.Q9 A deposit of $720 earns interest rates of 8 percent in the first year and 11 percent in the second year. What would be the second year future value? (Round your answer to 2 decimal places.) FUTURE VALUE?6. Consider a credit default swap initiated on April 1, 2012. The notional principal amount is $100 million. The premium payments are made annually at a rate of 180 basis points per year. The swap will last for 5 years. Suppose that default event occurs on December 31, 2014. The recovery rate is 65%. Then the accrual payment is equal to ___________. a. $0b. $1,200,000c. $1,350,000d. $4,400,000e. $35,000,000