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a US company burrows Mexican pesos for one uear at 30%. during the year peso
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- Your company issues debt in yen that has a YTM in yen of 7.5%. The 1-year LIBOR rate in ye is 1% and the 1-year US dollar LIBOR is 3.0%. What is the company’s US dollar cost of debt of its yen debt?You find the current annual interest rate in the U.S. is 3% and the annual interest rate in Canada is 5%. The spot rate for Canadian dollar is $0.95 per CAD, the 90-day Canadian dollar forward rate is $0.948 per CAD. Calculate the covered interest arbitrage profit assuming you can borrow up to $1 million U.S. dollars (or equivalent value of Canadian dollars). A. $3569 USD profit. B. None is correct. C. $2868 USD profit. D. $4672 USD 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%
- Chapman, Inc.'s Mexican subsidiary, V. Gomez Corporation, is expected to pay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S. taxes have been subtracted. The exchange rate in 1 year is expected to be $0.12 per peso. After this, the peso is expected to depreciate against the dollar at a rate of 5% a year forever due to the different inflation rates in the United States and Mexico. The peso-denominated dividend is expected to grow at a rate of 10% a year indefinitely. Chapman owns 10 million shares of V. Gomez. What is the present value of the dividend stream, in dollars, assuming V. Gomez's cost of equity is 12%? Do not round intermediate calculations. Round your answer to the nearest dollarThe 6-month interest rate in the US is 12.25% p.a. The 6-month interest rate in Canada is 15.25% p.a. The spot rate is US$0.8203/Canadian$ and the 6-month forward rate is US$0.8113/Canadian$. For a transaction size of US$700,000, how can an investor take advantage of the situation without taking undue risks? Ignore transaction costs and income taxesChapman Inc.’s Mexican subsidiary, V. Gomez Corporation, is expected topay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S.taxes have been subtracted. The exchange rate in 1 year is expected to be0.10 dollars per peso. After this, the peso is expected to depreciate againstthe dollar at a rate of 4% a year forever due to the different inflationrates in the United States and Mexico. The peso-denominated dividend isexpected to grow at a rate of 8% a year indefinitely. Chapman owns 10 million shares of V. Gomez. What is the present value of the dividend stream,in dollars, assuming V. Gomez’s cost of equity is 13%?
- A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 13% interest. Assuming capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero.Suppose a parent company wishes to determine the expected after-tax dollar cost of Rs.600 million local debt (at 16 per cent) raised by its subsidiary company S. Assuming a tax rate of 40 per cent, anticipated average annual devaluation of 3 per cent of the Indian rupee in relation to the US dollar and tax deduction of foreign, exchange losses, compute the cost of the debt.Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make a profit based on the following rates. Explain specific steps that Jack Ma must take to make a covered interest arbitrage. CAD= Canadian Dollar JYP= Japanese Yen 6-month Canadian interest rate 1.6% per annum 6-month Yen interest rate 2.95% per annum Spot rate JYP 93.1395/CAD 6-month forward rate JYP 93.8380/CAD
- Tony Fernandes, a foreign exchange trader in Canada, has CAD. 4,000,000 forshort-term money market investment and wants to make profit based on thefollowing rates. Explain specific steps that Tony Fernandes must take to makea covered interest arbitrage.6-month Canadian interest rate: 1.60% per annum6-month Yen interest rate: 2.95% per annumSpot rate: JYP 93.1395/CAD.6-month Forward Rate JYP 93.8380/CAD.CAD = Canadian DollarJYP = Japanese YenThe spot rate between the U.K. and the U.S. is £.7534/$, while the one-year forward rate is £.7524/$. The risk-free rate in the U.K. is 4.27 percent and in the United States is 2.58 percent. How much in profit can you earn on $9,000 utilizing covered interest arbitrage?Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make a profit based on the following rates. Explain specific steps that Jack Ma must take to make a covered interest arbitrage. CAD= Canadian Dollar JYP= Japanese Yen 6-month Canadian interest rate 1.6% per annum 6-month Yen interest rate 2.95% per annum Spot rate JYP 93.1395/CAD 6-month forward rate JYP 93.8380/CAD Step 1 1) Different i for Base rate -Quote rate = 2) Different between Spot and Forward = (1) + (2) = invest in _ borrow in _ Step 2 explain using table
