Chapter 11, Problem 46QA

Suppose the spot exchange rate for the U.S. dollar is CAD$1.01 and the six-month forward rate is CAD$1.03.   a. Which is worth more, a U.S. dollar or a Canadian dollar?     multiple choice 1 U.S. dollar Canadian dollar   b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is CAD$3.10? (Round the answer to 2 decimal places. Omit $ sign in your response.)   Cost in U.S dollar           $   c. Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?     multiple choice 2 Discount Premium   d. Which currency is expected to appreciate in value?     multiple choice 3 Canada dollar U.S. dollar   e. Which country do you think has higher interest rates—the United States or Canada?     multiple choice 4 U.S. Canada please do all parts

Suppose you have a 1,200,000 US dollar payable coming due in June and that the spottoday is .98 US/CDN. You get a strike of .98 US and you are dealing with the PHLX. Suppose you are deciding whether or not to hedge out the foreign exchange risk. The size of the Canadian dollar contract on the PHLX is 50,000 Canadian dollars percontract. The option price is listed as 1.00 for the June put on Canadian dollars and .90 on the June call. Suppose you expect the US/CDN to be .97 on the last day of the option (the expiry date). This also happens to be the day you need to cover your payable. How much does it cost you to set up the hedge with brokerage cost set to zero? (In CANADIAN dollars approximately.) A. 12,755 B. 12,887 C. 12,000 D. 12,500

Your company sells specialized electronic components to South Africa payable in South African Rands (ZAR). The following information is available on the $/ZAR exchange rates expected to prevail at the end of the year. The local prices of the electronic components are affected by the value of ZAR as shown below. Qi (Prob)            Si                         Local Price (P’i)                Pi (price in dollars)              0.20                     $0.0550              ZAR 30,000.00                 $1,650.00          0.30                     $0.0600              ZAR 27,500.00                 $1,650.000.30                     $0.0650              ZAR 25,000.00                 $1,625.00          0.20                     $0.0700              ZAR 22,500.00                 $1,575.00           a. What is relationship, as measured by β, between $/ZAR rates and the component prices in US dollars. b. Explain how you can hedge the above exposure using currency futures. The one-year forward rate…