You have just agreed to a forward trade that will be settled six months from now. When will the exchange rate for this transaction be determined? A. Today B. Three months from today because that is the halfway point C. Anytime you prefer within the next six months D. Whenever the spot rate six months from today is known E. Six months from now

You have just agreed to a forward trade that will be settled six months from now. When will the exchange rate for this transaction be determined? A. Today B. Three months from today because that is the halfway point C. Anytime you prefer within the next six months D. Whenever the spot rate six months from today is known E. Six months from now

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP2: Part 2: Exchange Rate Behavior

Section: Chapter Questions

Problem 1Q

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Here are today’s rates: Spot exchange rate: 3.20 Polish zloty per U.S. dollar 6-month forward exchange rate: 3.24 Polish zloty per U.S. dollar. You expect the spot exchange rate in 6 months to be 3.26 Polish zloty per U.S. dollar. Evaluate the validity of the following statement: “Given this information, you will profit from a forward exchange speculative position based on your expected future spot exchange rate, if the actual future spot exchange rate in 6 months is 3.25 zloty per U.S. dollar.”
The current spot exchange rate is USD 1.55 / EUR, and the 3-month forward rate is USD 1.50 / EUR. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be USD 1.62 / EUR in 3 months. You would like to buy or sell EUR 1 million. What should you do in order to speculate in the forward market?
Which one of the following best describes an agreement you make today to exchange U.S. dollars for British pounds three months from now? Multiple Choice Forward trade Spot trade Arbitrage transaction Cross-rate exchange Eurocurrency transaction
On January 1, one U.S. dollar can be exchanged for eight foreign currencies (FC). The dollar can be invested short term at a rate of 4%, and the FC can be invested at a rate of 5%.1. Calculate the direct and indirect spot exchange rates as of January 1.2. Calculate the 180-day forward rate to buy FC (assume 365 days per year).3. If the spot rate is 1 FC = $0.740 and the 90-day forward rate is $0.752, what does this suggest about interest rates in the two countries?4. Explain why a weak dollar relative to the FC would likely increase U.S. exports.5. Discuss what would happen to the forward rate if the dollar strengthened relative to the FC.
The current spot exchange rate is $1.60/€ and the three-month forward rate is $1.55/€. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be $1.62/€ in three months. Assume that you would like to buy or sell €1,000,000. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation? A. Sell €1,000,000 forward for $1.60/€, and you expect to gain $20,000. B. Buy €1,000,000 forward for $1.55/€, and you expect to gain $70,000. C. Wait three months, if your forecast is correct buy €1,000,000 at $1.62/€. D. Buy €1,000,000 forward for $1.60/€, and you expect to gain $20,000.
Assume that the 3 months JPY Libor (market interest rate) is 0.25% p.a., the 3 months USD Libor is 4.25% p.a., and the spot exchange rate is USD 1 = JPY 120.00. Calculate the 3 months forward exchange rate. Assume that the deal is done on 1st July, that is, the spot date is on 3rd July.
Suppose you are expecting to receive a million british pounds in six months,and you agree to a forward trade to exchange your pounds for dollars. If the spot exchange rate and the 150day forward rate in terms of dollars per pound are $1.5861=£1 and $1.5832=£1,respectively. How many dollars will you get in six months?Is the pound selling at a discount or a premium relative to the dollar??
Today is 1 July and the spot exchange rate for AUD 1.00 = EUR 0.7000. You have purchased equipment from a European supplier and the invoice amount is EUR 10,000. a) If you paid the invoice today, what is the AUD cost of the purchase?
The spot exchange rate is $1.98/£. If the expected exchange rate in one year is $2.01/£, and the U.S. annual interest rate is 5%, what must be the approximate one-year British interest rate if interest rate parity holds? A. 5.25% B. 2.75% C. 3.48%
Suppose the risk free rate in pounds (£) is 2.67% and the risk free rate in US dollars ($) is 5.03%. The current £ to $ exchange rate is 1.43 (so £1 can be exchanged for $1.43 with the money exchanged right now). You and a broker want to agree an exchange rate now for a £ to $ conversion, but where the money will be exchanged in precisely 30 months time. What exchange rate (£ to $) should you and your broker use to ensure there is no arbitrage?
The spot exchange rate between the Swiss Franc and U.S. dollar was 1.0404 ($ per franc). Interest rates in the U.S. and Switzerland were 0.65% and 0.20% per annum, respectively, with continuous compounding. 1.If there is no arbitrage opportunity, what is the three-month forward exchange rate ($ per franc)? 2.Suppose that the three-month forward exchange rate was 1.0300 ($ per franc). Is there an arbitrage? If so, construct the arbitrage that results in zero cash flow today and positive cash flow (in USD) in three months. 3.Calculate the arbitrage profit (in USD) when you implement the arbitrage strategy with 50 Swiss Franc.
Assume that the one-year interest rate is 3% p.a. in the UK and 2% p.a. in the Euro area. Also, assume that the current spot exchange rate of one pound to the euro is €1.1500/£ and that the corresponding one-year forward exchange rate is €1.1400/£. i) Use calculations to show whether the Interest Rate Parity (IRP) theory holds. ii) A UK investor has £200,000 to invest for one year either in the Euro area or the UK. Using the above information, determine which investment will generate a higher return. iii) Explain whether your results in i) and ii) above provide support to, or contradict, the covered interest rate parity (CIRP) condition.