International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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An investor has $2m to invest and has the option of placing it in a US bank account paying 2% annually, or in a German bank, where the annual rate of interest is only 2.5%. If the current exchange rate for the Euro is given as $1.4250, at what 1-year Dollar-Euro forward rate of exchange would the investor get the same return from investing in the US as he/she would by investing in Germany? Please show your work.
an investor has $2m to invest and has the option of placing it in a us bank account paying 2% annually, or in a german bank, where the annual rate of interest is only 2.5%. if the current exchange rate for the euro is given as $1.4250, at what 1-year dollar-euro forward rate of exchange would the investor get the same return from investing in the us as he/she would by investing in germany?
Assume you are in India and borrowed 800,000 Rs from one of your friends who lives in Australia. Suppose the spot exchange rate at the time borrowing was Rs63/$ and you promised to repay the loan after six months with a forward currency rate of Rs68/$ without any interest.
Required:
b) If you are planning to settle the loan amount in dollars (the amount calculated in a.), what is the amount of money in rupees (Rs) that you need to pay to an authorised currency exchanger in India after six months with a Rs 500 administration fee?
c) What is the total cost of your loan and present your answer as a rate of interest per annum
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- Assume you are in India and borrowed 800,000 Rs from one of your friends who lives in Australia. Suppose the spot exchange rate at the time borrowing was Rs63/$ and you promised to repay the loan after six months with a forward currency rate of Rs68/$ without any interest. Required: b) If you are planning to settle the loan amount in dollars (the amount calculated in a.), what is the amount of money in rupees (Rs) that you need to pay to an authorised currency exchanger in India after six months with a Rs 500 administration fee?arrow_forwardOn April 10, the annualized six-month Aussie dollar rate in the Sydney market was 2.98％, the annualized six-month US dollar rate in the New York market was 0.32％, the spot exchange rate was $1=A$1.0689～1.0699, the six-month forward premium was 40~ 50, and a US bank borrowed 1 million US dollar to do the interest rate arbitrage. What will be the result of the transaction? please give your answer in intergers (unit: US dollars)arrow_forwardAn investor has $10m to invest and has the following options: 1) depositing it in a US bank account paying 3% annually, or 2) depositing it in a German bank, where the annual rate of interest is only 2%. Assume that today the current spot exchange rate for the Euro is given as $1.2750, while the 1-year Dollar-Euro forward rate is posted as 1.2995. a. Based on your knowledge of the relationship between interest rate differentials and the current dollar-euro forward premium or discount, in which country should the investor deposit her money? why? b. If you had the power to adjust the German interest rate, with all else constant, what rate would you establish, such that the investor is totally indifferent between depositing in either countries? Show your work and the logic behind it.arrow_forward
- Your foreign exchange trader in the United States has quoted the following rates for the Swiss Francs spot, 1-month, 3-month, and 6 month: $0.5965/72 50/61 127/143 242/267 a. If/you wished to buy 1,000,000 3-month Swiss Francs, how much would you pay in dollars? b. If you wanted to buy 1,000,000 6-month dollars, how much would you pay in Swiss Francs? .C. In New York, three month treasury bills yield 11% per annum, Using ask quotes only for simplicity, calculate the yields on Swiss three-month bills.arrow_forwardJack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make a profit based on the following rates. Explain specific steps that Jack Ma must take to make a covered interest arbitrage. CAD= Canadian Dollar JYP= Japanese Yen 6-month Canadian interest rate 1.6% per annum 6-month Yen interest rate 2.95% per annum Spot rate JYP 93.1395/CAD 6-month forward rate JYP 93.8380/CADarrow_forwardThe treasurer of a major U.S. firm has $31276878 to invest for three months. The annual interest rate in the United States is 0.35% per month. The interest rate in Great Britain is 0.59% per month. The spot exchange rate is £0.72, and the three-month forward rate is £0.74. Ignoring transaction costs, what would be the NPV of investing in Great Britain as opposed to invest in the U.S.? NOTE: Enter the number rounding to four decimal placesarrow_forward
- Currently, the GBP/USD rate is 1.5011 and the six-month forward exchange rate is 1.5261. The six-month interest rate is 7.6% per annum in the U.S. and 5.7% per annum in the U.K. Assume that you can borrow £1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the foreign currency and invest locally? (USD, no cents)arrow_forwardOn your post graduation celebratory trip you decide to travel to Munich, Germany, to Moscow, Russia. You leave Munich with 15,000 euros in your wallet. Wanting to exchange all of them for Russian rubles, you obtain the following quotes: Spot rate on the dollar/euro cross rate: $1.3214/E Spot rate on the ruble/dollar cross rate: Rbl30.96/$ What is the Russian ruble/euro cross rate? How many rubles will you obtain for your euros?arrow_forwardI want the answer of (c). I need the answer of all questions 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…arrow_forward
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