FUND OF CORPORATE FINANCE LL W/ACCESS
FUND OF CORPORATE FINANCE LL W/ACCESS
11th Edition
ISBN: 9781260076752
Author: Ross
Publisher: MCG
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Chapter 21, Problem 9QP
Summary Introduction

To find: The profit if the rate of exchange goes up or down, the break-even exchange rate and the percentage change.

Introduction:

The price of a country’s currency that in terms of another nation’s currency is the exchange rate. The rate of exchange can be either floating or fixed. The two components of the exchange rates are the foreign currency and the domestic currency.

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Students have asked these similar questions
1. A one-year Japanese security is currently yielding 5%. Furthermore, it is expected that the exchange rate between the dollar and the yen is changing from 98 yen to the dollar, to 95 yen to the dollar over the next year. To invest in U.S. security rather than Japanese security, you would need a return at least equal to what value?
P19–1 EXCHANGE RATE MOVEMENTS Suppose a basket of goods in Paris costs €133and the same basket purchased in New York costs $153. At what exchange rate between euros and dollars is the cost of the basket of goods the same in each city? Now suppose that over the next year inflation in France is expected to be 2% while in the U.S. the forecast is for 6% inflation. What exchange rate do you expect a year from today?
8. Consider countries X and Y with risk-free rates of 8 and 10 percent, respectively. The future price (Currency X/ Currency Y) for a contract deliverable in 3 months is the same as the current exchange rate. Is there any arbitrage opportunity? If there is, design a strategy to exploit the arbitrage

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FUND OF CORPORATE FINANCE LL W/ACCESS

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