International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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- Assume the following information: Spot rate of Mexican peso $0.100 1-year forward rate of Mexican peso $0.099 1-year Mexican interest rate 6% 1-year U.S. interest rate 5% 1. Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1,000,000.) 2. What market forces would occur to eliminate any further possibilities of covered interest arbitrage?arrow_forwardAs a US investor willing to invest $1,000,000 with the information given below: Spot rate of £ =$1.60 180-day forward rate of £ =$1.56 180-day British interest rate = 4% 180-day US interest rate = 3% Is the Covered Interest Arbitrage by the investor is feasible? Explain Does the Interest Rate Parity Condition exist given the above information?arrow_forwardSuppose vou are a UK-based investor and the interest rate on investments in UK is 0.85% pa. and the interest rate for comparable investments in USTis 1.35% p.a. Suppose further that the spot rate is GBP 0.7267 /USD and that the quoted one-year forward rate by the bank is GBP 0.7195 /USDa.) If covered interest rate holds, Is there an arbitrage opportunity? Why?b.) If yes, how high is it if you were able to borrow USD twenty million at the above rates from a US bank for one year? Please state the gain in USD.arrow_forward
- Discuss the short-term approach to interest rate determination in the Caribbean and factors influencing liquidity preference.arrow_forwardUsing Currency Futures:a. How can currency futures be used by corporations? Give appropriate example.b. How can currency futures be used by speculators? Give appropriate example.arrow_forwardAssume that foreign investors who have invested in Malaysian securities decide to increase their holdings of Malaysian securities and to instead decrease their holdings of securities in their own countries. How will this affect Malaysian interest rates? Explain.arrow_forward
- Assuming that existing U.S. one year interest rate is 8% and the Canadian one-year interest rate is 9%. Also assume that interest rate parity exists. Should the forward rate of the Canadian dollar exhibit a discount or a premium? If U.S. investors attempt covered interest arbitrage, what will be their return? If Canadian investors attempt covered interest arbitrage what will be their return?arrow_forwardAssume U.S. interest rates are generally above foreign interest rates. What does this suggest about the future strength or weakness of the dollar based on the IFE? Should U.S. investors invest in foreign securities if they believe in the IFE? Should foreign investors invest in U.S. securities if they believe in the IFE?arrow_forwardLet i be home interest rates, i* a foreign interest rates and p be the forward foreign exchange premium (=F/S-1). Assume there is a transaction cost equal to C incurred in any covered interest rate arbitrage. Write down the relation by which incentives are present for money to move from the foreign country to home.arrow_forward
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