Suppose that the current EUR/GBP exchange rate is £0.86 per euro. The current 6-month interest rates are: GBP 4%, EUR 6%. There are three 6-month forward contracts available, with the following exchange rates: Contract A B C EUR/GBP 0.86 0.85 0.90 You expect to receive an inheritance of €50,000 in six months, and you expect the EUR/GBP exchange rate to remain at £0.86 per euro until then. Would you enter in any of the available contracts today? If so and assuming your expectation about the future exchange rate is correct, how much profit/loss would you make?
Suppose that the current EUR/GBP exchange rate is £0.86 per euro. The current 6-month interest rates are: GBP 4%, EUR 6%. There are three 6-month forward contracts available, with the following exchange rates: Contract A B C EUR/GBP 0.86 0.85 0.90 You expect to receive an inheritance of €50,000 in six months, and you expect the EUR/GBP exchange rate to remain at £0.86 per euro until then. Would you enter in any of the available contracts today? If so and assuming your expectation about the future exchange rate is correct, how much profit/loss would you make?
Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)
14th Edition
ISBN:9781305506381
Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris
Chapter6: Managing In The Global Economy
Section: Chapter Questions
Problem 12E
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Suppose that the current EUR/GBP exchange rate is £0.86 per euro. The current 6-month interest rates are: GBP 4%, EUR 6%.
There are three 6-month forward contracts available, with the following exchange rates:
|
Contract |
A |
B |
C |
|
EUR/GBP |
0.86 |
0.85 |
0.90 |
You expect to receive an inheritance of €50,000 in six months, and you expect the EUR/GBP exchange rate to remain at £0.86 per euro until then. Would you enter in any of the available contracts today? If so and assuming your expectation about the future exchange rate is correct, how much
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