Spot exchange rate of Country C $ to Country U dollar.

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Answer 1

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Chapter 16, Problem 2SP

a)

Summary Introduction

To determine: Spot exchange rate of Country C $ to Country U dollar.

b)

Summary Introduction

To determine: Spot exchange rate of Country J yen to Country U dollar.

c)

Summary Introduction

To determine: Spot exchange rate for Country S franc to Country U dollar.

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A UK importer contracts to pay 18 million Yen for raw material from a supplier in Japan on one month's credit. The importer arranges with his bank to cover the transaction in sterling on the forward exchange market. The following rates are quoted to him (in Yen/£): Spot rate 247.45 - 247.75 1 month forward 248.00 – 248.80 What will be the cost of the shipment in sterling?

A merchant in the UK has agreed to sell goods to an importer in the USA at an invoice price of $130,000. Of this amount, $40,000 will be payable on shipment, $60,000 one month after shipmentand $30,000 three months after shipment.The quoted foreign exchange rates ($ per £) at the date of shipment are as follows:Spot rate (on shipment) 1.690 -1.692Forward rate-(one month after) 1.687 -1.690Forward rate-(three months after) 1.680 -1.684The merchant decides to enter forward exchange contracts through his bank to hedge these transactions for fear that the future spot rates may change to his disadvantage. i. State what are the presumed advantages of using forward exchange contracts. ii. Calculate the sterling amount that the merchant would receive on these contracts. iii. Comment on the wisdom of the merchant decision to hedge by comparing his total receipts inpound sterling, assuming the spot rate ($ per £) at the dates of receipt of first payment upon shipment remains the same but rates…

Emily Karlsen is a currency trader in Sydney and has 1 million Australian dollar (or the U.S. dollar equivalent) available. She considers 180 day arbitrage opportunities and retrieves the following current foreign exchange rates and interest rates: (Note that Australian dollar is regarded as the home currency.) Spot exchange rate in Sydney: $A1.1764/$US 6-month forward rate in Sydney: $A1.2575/$US U.S. dollar interest rate: 5.0 percent per annum Australian dollar interest rate: 7.0 percent per annum In the absence of transaction costs, is covered interest arbitrage (CIA) possible in the above case? If yes, calculate how much profit Emily Karlsen could make (annualized rate of return over her initial investment).

Answer 2

Question

Chapter 16, Problem 2SP

a)

Summary Introduction

To determine: Spot exchange rate of Country C $ to Country U dollar.

b)

Summary Introduction

To determine: Spot exchange rate of Country J yen to Country U dollar.

c)

Summary Introduction

To determine: Spot exchange rate for Country S franc to Country U dollar.

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Answer 3

Question

Chapter 16, Problem 2SP

a)

Summary Introduction

To determine: Spot exchange rate of Country C $ to Country U dollar.

b)

Summary Introduction

To determine: Spot exchange rate of Country J yen to Country U dollar.

c)

Summary Introduction

To determine: Spot exchange rate for Country S franc to Country U dollar.

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Answer 4

Question

Chapter 16, Problem 2SP

a)

Summary Introduction

To determine: Spot exchange rate of Country C $ to Country U dollar.

b)

Summary Introduction

To determine: Spot exchange rate of Country J yen to Country U dollar.

c)

Summary Introduction

To determine: Spot exchange rate for Country S franc to Country U dollar.

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Answer 5

Chapter 16, Problem 2SP

a)

Summary Introduction

To determine: Spot exchange rate of Country C $ to Country U dollar.

b)

Summary Introduction

To determine: Spot exchange rate of Country J yen to Country U dollar.

c)

Summary Introduction

To determine: Spot exchange rate for Country S franc to Country U dollar.

Answer 6

Chapter 16, Problem 2SP

a)

Summary Introduction

To determine: Spot exchange rate of Country C $ to Country U dollar.

Answer 7

Chapter 16, Problem 2SP

a)

Summary Introduction

To determine: Spot exchange rate of Country C $ to Country U dollar.

Answer 8

b)

Summary Introduction

To determine: Spot exchange rate of Country J yen to Country U dollar.

Answer 9

b)

Summary Introduction

To determine: Spot exchange rate of Country J yen to Country U dollar.

Answer 10

c)

Summary Introduction

To determine: Spot exchange rate for Country S franc to Country U dollar.

Answer 11

c)

Summary Introduction

To determine: Spot exchange rate for Country S franc to Country U dollar.

Answer 12

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Answer 13

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Answer 14

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Answer 15

Ch. 16 - Prob. 1RQ Ch. 16 - Prob. 2RQ Ch. 16 - What is meant by arbitrage profits?Ch. 16 - Prob. 4RQ Ch. 16 - Prob. 5RQ Ch. 16 - Prob. 6RQ Ch. 16 - Prob. 7RQ Ch. 16 - Prob. 8RQ Ch. 16 - Prob. 9RQ Ch. 16 - Prob. 1SP

Spot exchange rate of Country C $ to Country U dollar.

To determine: Spot exchange rate of Country C $ to Country U dollar.

To determine: Spot exchange rate of Country J yen to Country U dollar.

To determine: Spot exchange rate for Country S franc to Country U dollar.

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Chapter 16 Solutions