The Korean Won has fallen nearly 20% over the past year relative to the US$: If the uncovered interest parity theory were correct, what should Korean interest rates have been one year ago if rates in the U.S. were 10%: (a) 10%; (b) 20%; (c) 30%; (d) 0 Please show work
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- Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to be paid in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. a. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw receive after it exchanged yen for U.S. dollars? b. What is the difference (in dollars) between what DeGraw could have received had they asked for payment immediately (before the devaluation of the yen) instead of six months later?Assume that interest rate parity holds. The U.S. five‑year interest rate is 0.07 annualized, and the Mexican five‑year interest rate is 0.03 annualized. Today’s spot rate of the Mexican peso is $0.30. What is the approximate 10‑year forecast of the peso’s spot rate if the 10‑year forward rate is used as a forecast?Hedging is one strategy or process that is used to of manage both exchange rate and interest rate exposures to MNCs. Owing to the above, American Airlines the entity in which you are the financial advisor is trying to decide how to go about hedging €70 million in ticket sales receivable in180 days. The following exchange /interest rates are available: Spot rate $0.6433-42/€ 180-day forward rate $0.6578-99/€ Euro 180-day interest rate (p.a.) 4.01%-3.97% U.S.$ 180-day interest rate (p.a.) 8.01%-7.98%What is the financial impact on the Airline should they opt to remain in unhedged position.Elaborate more on your answer.
- A US investor sees an arbitrage opportunity in the currency markets. The spot exchange rate between the Swiss Franc and US Dollar is 1.0404 ($ per CHF). Assume the continuously compounded interest rates in the US and Switzerland are 0.25% and 0%, respectively. The 3-month currency forward price is 1.0300 ($ per CHF). What is the theoretically correct forward price. What is the investor’s total profit (in CHF), assuming she begins by borrowing 1,000 CHF? ?A foreign exchange trader with a U.S. bank took a speculative long position of £6,000,000 when the GBP/USD was 1.3233. Subsequently, the exchange rate has changed to 1.3342. If the position is closed now, what is the profit/loss arising from that trade? (USD, no cents)Suppose Australia has an annual 6% inflation rate, while the annual growth rate of the nominalexchange rate, expressed in euros per Australian dollar, is 4%. If purchasing power parity holds,what is the annual inflation rate in the Eurozone?
- Suppose that a U.S. company wishes to purchase goods from a German producer. The U.S. firm agrees to take the delivery of the goods in three months and to pay €1 million Euros at that time. This company wishes to avoid this exchange rate risk by buying Euros at the 3-month forward rate, f = 0.95 (€/$). Then, how much this company would have to pay in US dollars in exchange for €1 million Euros? a. $1 million dollars. b. $1,052,632 dollars. c. $950,000 dollars.Dengo Co. expects to receive 50 million INR in each of the next 7 years. It will need toobtain 5 million Mexican pesos in each of the next 7 years. The INR exchange rate ispresently valued at BDT 0.85 and is expected to depreciate by 2 percent each year over time.The peso is valued at BDT 1.13 and is expected to appreciate by 2 percent each year overtime. Review the valuation equation for an MNC. Do you think that the exchange ratemovements will have a favorable or unfavorable effect on the MNC?The Mexican peso is trading at 11 pesos per dollar.If the expected U.S. inflation rate is 1% while theexpected Mexican inflation rate is 15% over the nextyear, given PPP, what is the expected exchange rate inone year?
- A UK-manufactured car sells for GBP 14.000. A french-manufactured car sells for EUR 15.750. If the EUR/GBP exchange rate is 1.09, how much does the british-made car cost in EUR? a. 12,923 b. 13,462 c. 18,427 d. 15,260A company manufacturers a product in the United States and sells it in England. The unit cost of manu- facturing is $50. The current exchange rate (dollars per pound) is 1.221. The demand function, which indicates how many units the company can sell in England as a function of price (in pounds) is of the power type, with constant 27556759 and exponent 22.4. a. Develop a model for the company’s profit (in dol- lars) as a function of the price it charges (in pounds). Then use a data table to find the profit-maximizing price to the nearest pound. b. If the exchange rate varies from its current value, does the profit-maximizing price increase or decrease? Does the maximum profit increase or decrease?Please no written by hand Let’s suppose you (USA dealer) imported one Lamborghini SVJ-Verde Scandal from Italian dealer on March 1, 2019 at € 400,000, payable in 30 days. The exchange rate on March 1, 2019 was 1.16 US$/€. Then you sold all of them in the US market at US$610,000 in cash on March 29, 2019. On April 1, 2019, you paid to Italian car dealer at the exchange rate of 1.26 US$/€. What was profit or loss from this business in terms of US$? (Please assume all costs are included in price.) Group of answer choices $106,000 $98,0210 $96,400 $92,020