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EBK CORPORATE FINANCE
11th Edition
ISBN: 8220102798878
Author: Ross
Publisher: YUZU
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Textbook Question
Chapter 31, Problem 7QP
Interest Rates and Arbitrage The treasurer of a major U.S. firm has $30 million to invest for three months. The annual interest rate in the United States is .17 percent per month. The interest rate in Great Britain is .61 percent per month. The spot exchange rate is £.64, and the three-month forward rate is £.65. Ignoring transaction costs, in which country would the treasurer want to invest the company’s funds? Why?
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Students have asked these similar questions
The treasurer of a major U.S. firm has $30 million to invest for three months. The interest rate in the United States is
15 percent per month. The interest rate in Great Britain is .26 percent per month. The spot exchange rate is £.813,
and the three-month forward rate is £.827. Ignore transactions costs.
a. If the treasurer invested the company's funds in the U.S., how much would the investment be worth after three
months?
Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars,
rounded to 2 decimal places, 1,234,567.89.
b. If the treasurer invested the company's funds in Great Britain, how much would the investment be worth after
three months?
Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars,
rounded to 2 decimal places, 1,234,567.89.
a. U.S. investment
b. Great Britain investment
The treasurer of a major U.S. firm has $41571485 to invest for three months. The annual interest rate in the United States is 0.25% per month. The interest rate in Great Britain is 0.63% 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.?
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rate in the United States is .22 percent per month. The interest rate in Great Britain is .27
percent per month. The spot exchange rate is £.622, and the three-month forward rate is
£.624. Ignore transaction costs. What would be the value of the investment in three
months if the money is invested in the U.S. or if it is invested in Great Britain? (Do not
round intermediate calculations and enter your answers in dollars, not in millions of
dollars, rounded to 2 decimal places, e.g., 1,234,567.89.)
U.S.
Great Britain
Chapter 31 Solutions
EBK CORPORATE FINANCE
Ch. 31 - Spot and Forward Rates Suppose the exchange rate...Ch. 31 - Prob. 2CQCh. 31 - Prob. 3CQCh. 31 - Prob. 4CQCh. 31 - International Risks At one point, Duracell...Ch. 31 - Multinational Corporations Given that many...Ch. 31 - Prob. 7CQCh. 31 - Exchange Rate Movements Some countries encourage...Ch. 31 - Prob. 9CQCh. 31 - Exchange Rate Risk If you are an exporter who must...
Ch. 31 - International Capital Budgeting Suppose it is your...Ch. 31 - International Capital Budgeting An investment in a...Ch. 31 - International Borrowing If a U.S. firm raises...Ch. 31 - International Investment If financial markets arc...Ch. 31 - Using Exchange Rates Take a look back at Figure 3...Ch. 31 - Prob. 2QPCh. 31 - Prob. 3QPCh. 31 - Using Spot and Forward Exchange Rates Suppose the...Ch. 31 - Prob. 5QPCh. 31 - Prob. 6QPCh. 31 - Interest Rates and Arbitrage The treasurer of a...Ch. 31 - Inflation and Exchange Rates Suppose the current...Ch. 31 - Exchange Rate Risk Suppose your company imports...Ch. 31 - Prob. 10QPCh. 31 - The International Fisher Effect You observe that...Ch. 31 - Prob. 12QPCh. 31 - Prob. 13QPCh. 31 - Capital Budgeting Lakonishok Equipment has an...Ch. 31 - Capital Budgeting You are evaluating a proposed...Ch. 31 - Prob. 16QPCh. 31 - Prob. 17QPCh. 31 - Using the Exact International Fisher Effect From...Ch. 31 - Prob. 1MCCh. 31 - What will happen to the companys profits if the...Ch. 31 - Ignoring taxes, what are East Coast Yachts...Ch. 31 - How can the company hedge its exchange rate risk?...Ch. 31 - Taking all factors into account, should the...
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