International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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If the interest rate in USD is 1%, and is 1.2% for Canadian Dollar deposits, find the forward price of a Canadian Dollar when the current exchange rate is 1.1, and expiration is three years from signing? b) If the Forward price of a Canadian dollar is currently 1.2, how could you use the synthetic to do arbitrage?
Vicky Gomez, a foreign exchange trader at Wells Fargo, can invest $1M, or the foreign currency equivalent of the bank's short term funds, in an uncovered or covered interest arbitrage with the United Kingdom.
Arbitrage funds available to invest: $1M( or the equivalent in pounds)
Spot rate ($/Ł) : 1.9422
90-day forward exchange rate ($/Ł): 1.9150
Expected 90-day spot exchange rate ($/Ł): 1.8810
U.S. dollar 90-day interest rate: 2.000%
U.K. pound 90-day interest rate: 5.900%
A.Should Vicky make an covered investment in the UK? Show work and give answer.
B. Shoudl Vicky make an uncovered investment in the UK? Show work and give answer.
Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months. What is the expected value of payables in AUD under hedge?
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