EBK FOUNDATIONS OF FINANCE
10th Edition
ISBN: 9780135160473
Author: KEOWN
Publisher: PEARSON CO
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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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8. As an employee of the foreign exchange department for a commercial bank in USA, you have been provided the following information: Beginning of Year: Initial amount of investment $2,00,000 One-year forward rate of £ = $1.59 One-year U.S interest rate 8.00% One-year British interest rate 9.09% 11 Spot rate of f = $1.625 Spot rate of Australian dollar (A$) = $.70 Cross exchange rate: £1= A$2.35 One-year forward rate of A$ = $0.70 One-year Australian interest rate 10.00% a) Determine whether triangular arbitrage is feasible and, if so, how it should be conducted to make a profit? b) Using the information, determine whether covered interest arbitrage is feasible and, if so, how it should be conducted to make a profit? c) Assume that at the beginning of the year, the pound's value is in equilibrium. Over-the- year, the British inflation rate is 6 percent, while the U.S. inflation rate is 4 percent. Further…
An Australian firm asks the bank for an AS/SFr quote because it received SFr and wants to change it to A$. A bank is quoting the following exchange rates against the US dollar for the Swiss franc and the Australian dollar:
SFr/US$ = 1.4950-60
AS/USS = 1.5245-50
Calculate the cross ask rate for the A$/SFR by identifying the correct formula in the attached formula sheet.
One of the following answers will be correct:
a. 1.0201
b. 1.0213
c. 0.9813
d. 0.9803
Show your workings in the space provided as well as the correct answer.
For example write your answer as follows in the space provided below: Spot ask rate (AS/SFR) = 1.4670/1.3980 = 1.0494
Suppose you work at the FOREX desk of a multinational bank. No particular country is the home country for you as your responsibility is to conduct foreign exchange trade in whichever way is profitable for the bank. Using this as your guideline, consider the following data:
S0 = ¥92/US$
S180 = ¥92/US$
IUS = 2% per annum
IJapan = 0.09% per annum
With a starting amount of US$10 million or its Yen equivalent, can you make a UIA profit? What if a CIA was conducted at F180 of ¥90/US$? What are your observations?
Chapter 16 Solutions
EBK FOUNDATIONS OF FINANCE
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - What is meant by arbitrage profits?Ch. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - Prob. 1SP
Ch. 16 - Prob. 2SPCh. 16 - Prob. 3SPCh. 16 - Prob. 4SPCh. 16 - (Exchange rate arbitrage) You own 10,000. The...Ch. 16 - Prob. 6SPCh. 16 - Prob. 7SPCh. 16 - Prob. 8SPCh. 16 - Prob. 9SPCh. 16 - Prob. 10SPCh. 16 - Prob. 11SPCh. 16 - (Purchasing-power parity) Lets assume a McDonalds...Ch. 16 - Prob. 1MCCh. 16 - Prob. 2MCCh. 16 - Prob. 3MCCh. 16 - d. What are the differences among a forward...Ch. 16 - Prob. 5MCCh. 16 - Prob. 6MCCh. 16 - Selling Quotes for Foreign Currencies in New York...Ch. 16 - Prob. 8MCCh. 16 - Prob. 9MC
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