(a) To calculate: The rates of return in dollar-denominated in different scenarios including a forward sale by the investor of Pound 5000 at a rate of $ 2 / pound Introduction: The dollar-denominated return is the return earned by the U.S. investor by investing a particular amount in foreign currency.

Question

Suppose a U.S. investor wishes to invest in a British firm currently selling for £24 per share. The investor has $48,000 to invest, and the current exchange rate is $2/£.Suppose now the investor also sells forward £24,000 at a forward exchange rate of $1.90/£. Calculate the dollar-denominated returns for each scenario.

Answer 1

Question

Chapter 25, Problem 5PS

Summary Introduction

(a)

To calculate:

The rates of return in dollar-denominated in different scenarios including a forward sale by the investor of Pound 5000 at a rate of $2/pound

Introduction:

The dollar-denominated return is the return earned by the U.S. investor by investing a particular amount in foreign currency.

Summary Introduction

(b)

To calculate:

Ascertain the standard deviation of the dollar-denominated return.

Introduction:

Standard deviation is a measure to calculate the deviation from the mean which is also called as a measure of dispersion. It helps in analyzing the performance of the fund.

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Suppose a U.S. investor wishes to invest in a British firm currently selling for £24 per share. The investor has $48,000 to invest, and the current exchange rate is $2/£.Suppose now the investor also sells forward £24,000 at a forward exchange rate of $1.90/£. Calculate the dollar-denominated returns for each scenario.

The current exchange rate from dollars to British pounds is 1.03 ($/pound). The current dollar denominated continuously compounded risk-free rate 4% and you observe the current pound forward contract with 3 years to maturity to have a forward price of $1.11 .a. What is the implied pound denominated risk-free rate? b. If the actual pound denominated risk-free rate is 0%, how would you create an arbitrage opportunity? c. What is the arbitrage profit from your strategy in part b?

the current spot exchange rate is $1.85/pound and the three-month forward rate is $1.80/pound. based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be $1.82/pound in three months. assume that you wouldlike to buy or sell 1,000,000 pounds. what actions do you need to take to use these rates to earn a profit? what is the expected dollar profit from speculation? what would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be $1.76/pound

Answer 2

Question

Chapter 25, Problem 5PS

Summary Introduction

(a)

To calculate:

The rates of return in dollar-denominated in different scenarios including a forward sale by the investor of Pound 5000 at a rate of $2/pound

Introduction:

The dollar-denominated return is the return earned by the U.S. investor by investing a particular amount in foreign currency.

Summary Introduction

(b)

To calculate:

Ascertain the standard deviation of the dollar-denominated return.

Introduction:

Standard deviation is a measure to calculate the deviation from the mean which is also called as a measure of dispersion. It helps in analyzing the performance of the fund.

Expert Solution & Answer

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Answer 3

Question

Chapter 25, Problem 5PS

Summary Introduction

(a)

To calculate:

The rates of return in dollar-denominated in different scenarios including a forward sale by the investor of Pound 5000 at a rate of $2/pound

Introduction:

The dollar-denominated return is the return earned by the U.S. investor by investing a particular amount in foreign currency.

Summary Introduction

(b)

To calculate:

Ascertain the standard deviation of the dollar-denominated return.

Introduction:

Standard deviation is a measure to calculate the deviation from the mean which is also called as a measure of dispersion. It helps in analyzing the performance of the fund.

Expert Solution & Answer

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Answer 4

Question

Chapter 25, Problem 5PS

Summary Introduction

(a)

To calculate:

The rates of return in dollar-denominated in different scenarios including a forward sale by the investor of Pound 5000 at a rate of $2/pound

Introduction:

The dollar-denominated return is the return earned by the U.S. investor by investing a particular amount in foreign currency.

Summary Introduction

(b)

To calculate:

Ascertain the standard deviation of the dollar-denominated return.

Introduction:

Standard deviation is a measure to calculate the deviation from the mean which is also called as a measure of dispersion. It helps in analyzing the performance of the fund.

Expert Solution & Answer

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Answer 5

Chapter 25, Problem 5PS

Summary Introduction

(a)

To calculate:

The rates of return in dollar-denominated in different scenarios including a forward sale by the investor of Pound 5000 at a rate of $2/pound

Introduction:

The dollar-denominated return is the return earned by the U.S. investor by investing a particular amount in foreign currency.

Summary Introduction

(b)

To calculate:

Ascertain the standard deviation of the dollar-denominated return.

Introduction:

Standard deviation is a measure to calculate the deviation from the mean which is also called as a measure of dispersion. It helps in analyzing the performance of the fund.

Answer 6

Chapter 25, Problem 5PS

Summary Introduction

(a)

To calculate:

The rates of return in dollar-denominated in different scenarios including a forward sale by the investor of Pound 5000 at a rate of $2/pound

Introduction:

The dollar-denominated return is the return earned by the U.S. investor by investing a particular amount in foreign currency.

Answer 7

Chapter 25, Problem 5PS

Summary Introduction

(a)

To calculate:

The rates of return in dollar-denominated in different scenarios including a forward sale by the investor of Pound 5000 at a rate of $2/pound

Introduction:

The dollar-denominated return is the return earned by the U.S. investor by investing a particular amount in foreign currency.

Answer 8

Summary Introduction

(b)

To calculate:

Ascertain the standard deviation of the dollar-denominated return.

Introduction:

Standard deviation is a measure to calculate the deviation from the mean which is also called as a measure of dispersion. It helps in analyzing the performance of the fund.

Answer 9

Summary Introduction

(b)

To calculate:

Ascertain the standard deviation of the dollar-denominated return.

Introduction:

Standard deviation is a measure to calculate the deviation from the mean which is also called as a measure of dispersion. It helps in analyzing the performance of the fund.

Answer 10

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Answer 21

Ch. 25 - Prob. 1PS Ch. 25 - Prob. 2PS Ch. 25 - Prob. 3PS Ch. 25 - Prob. 4PS Ch. 25 - Prob. 5PS Ch. 25 - Prob. 6PS Ch. 25 - Prob. 7PS Ch. 25 - Prob. 8PS Ch. 25 - Prob. 9PS Ch. 25 - Prob. 1CP

Solution Summary: The author explains how to calculate the dollar-denominated return by using the following formula.

Videos

(b)

To calculate:

Ascertain the standard deviation of the dollar-denominated return.

Introduction:

Standard deviation is a measure to calculate the deviation from the mean which is also called as a measure of dispersion. It helps in analyzing the performance of the fund.

Chapter 25 Solutions

Solution Summary: The author explains how to calculate the dollar-denominated return by using the following formula.

Videos

(a) To calculate: The rates of return in dollar-denominated in different scenarios including a forward sale by the investor of Pound 5000 at a rate of $2/pound Introduction: The dollar-denominated return is the return earned by the U.S. investor by investing a particular amount in foreign currency.

(b) To calculate: Ascertain the standard deviation of the dollar-denominated return. Introduction: Standard deviation is a measure to calculate the deviation from the mean which is also called as a measure of dispersion. It helps in analyzing the performance of the fund.

Chapter 25 Solutions

(b)

To calculate:

Ascertain the standard deviation of the dollar-denominated return.

Introduction:

Standard deviation is a measure to calculate the deviation from the mean which is also called as a measure of dispersion. It helps in analyzing the performance of the fund.