Engineering Economy
16th Edition
ISBN: 9780133582819
Author: Sullivan
Publisher: DGTL BNCOM
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 8, Problem 36P
To determine
Impact of exchange rate fluctuations.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
At the start of May, you purchased some shares in Apple (a US company) for $US 43.87, and hedged your position using forward contracts (hedging the purchase value of the shares). The exchange rate at the time of purchase was $US1 = $NZ 2.73, while the one month NZ interest rate was 7.90% and the one month US interest rate was 7.30% (both rates are per annum, with monthly compounding). At the end of May, the exchange rate was $US1 = $NZ 2.78, while the shares were worth $US 41.63. Apple paid no dividends during May. What was your ($NZ) holding period return over the month of May?
Suppose 6-month Treasury bills are trading at a YTM of 1.6%, 12-month T-bills are trading at a YTM of 2.9%. If 18-month Treasury notes with a coupon rate of 3% are trading at par ($100), then what is the 18-month spot rate?
Assume that all full-bodied coins are issued by the federal government and that the following three steps are
involved:
(1) It defines the gold value of the monetary unit by stipulating that the dollar contains 24.0 grains of pure
gold. Also, assume that there are 480 grains of gold in one ounce of gold.
(2) At the stipulated price, it will purchase all the metal that is offered and coin it without limit and virtually
without charge.
(3) It will permit the melting of coins to get gold for nonmonetary uses.
Below are the Demand and Supply schedules for gold as a commodity for non-monetary purposes:
厂T
Quantity Demanded (ozs.) Price
$25.00
Quantity Supplied (ozs.)
500
400
100
200
20.00
300
300
400
500
15.00
200
100
10.00
5.00
You may use this blank graph to help you answer all questions below:
Price
Quantity
Chapter 8 Solutions
Engineering Economy
Ch. 8 - Prob. 1PCh. 8 - Prob. 2PCh. 8 - Prob. 3PCh. 8 - Prob. 4PCh. 8 - Prob. 5PCh. 8 - Prob. 6PCh. 8 - Prob. 7PCh. 8 - Prob. 8PCh. 8 - Prob. 9PCh. 8 - Prob. 10P
Ch. 8 - Prob. 11PCh. 8 - Prob. 12PCh. 8 - Prob. 13PCh. 8 - A commercial building design cost 89/square-foot...Ch. 8 - Prob. 15PCh. 8 - Prob. 16PCh. 8 - Prob. 17PCh. 8 - Prob. 18PCh. 8 - Prob. 19PCh. 8 - Prob. 20PCh. 8 - Prob. 21PCh. 8 - Prob. 22PCh. 8 - Prob. 23PCh. 8 - Prob. 24PCh. 8 - Prob. 25PCh. 8 - Prob. 26PCh. 8 - Prob. 27PCh. 8 - Prob. 28PCh. 8 - Prob. 29PCh. 8 - Prob. 30PCh. 8 - Prob. 31PCh. 8 - Prob. 32PCh. 8 - Prob. 33PCh. 8 - Prob. 34PCh. 8 - Prob. 35PCh. 8 - Prob. 36PCh. 8 - Prob. 37PCh. 8 - Prob. 38PCh. 8 - Prob. 39PCh. 8 - Prob. 40PCh. 8 - Prob. 41PCh. 8 - Prob. 42PCh. 8 - Prob. 43PCh. 8 - Prob. 44PCh. 8 - Prob. 45PCh. 8 - Prob. 46PCh. 8 - Prob. 47PCh. 8 - Prob. 48PCh. 8 - Prob. 49SECh. 8 - Prob. 50SECh. 8 - Prob. 51SECh. 8 - Prob. 52CSCh. 8 - Suppose the cost of electricity is expected to...Ch. 8 - Prob. 54CSCh. 8 - Prob. 55FECh. 8 - Prob. 56FECh. 8 - Prob. 57FECh. 8 - Prob. 58FECh. 8 - Prob. 59FECh. 8 - Prob. 60FECh. 8 - Prob. 61FE
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Similar questions
- Assume your company has a contract to purchase 100,000 computers from a Korean company. The payment is due on receipt of the shipment and must be delivered in Korea on July 31, 2024. In December 2023, when you are arranging the contract, the computers are priced at 500,000 won each. The spot rate in December 2023 is $1 in exchange for 1,250 won. The Korean won is expected to cost 10% more compared with the U.S. dollar when payment is due in July 2024. What would you advise your firm to do to avoid a loss on the deal? $/francE $/£Earrow_forwardA US investor sees an arbitrage opportunity in the currency markets. The spot exchange rate between the Swiss Franc and US Dollar is 1.0404 ($ per CHF). Assume the continuously compounded interest rates in the US and Switzerland are 0.25% and 0%, respectively. The 3-month currency forward price is 1.0300 ($ per CHF). What is the theoretically correct forward price. What is the investor’s total profit (in CHF), assuming she begins by borrowing 1,000 CHF? ?arrow_forwardOn 26 May 2021 it cost $1.41 (USD) to buy one British Pound, while the 10-year British Government Bond interest rate was 0.755% and the US Government Bond 10-year interest rate was 1.56%. Six months later, on 26 November 2021 it cost $1.33 (USD) to buy one British Pound, while the 10-year British interest rate was 0.839% and the US 10-year rate was 1.51%. Is the change in the USD, British Pound exchange rate consistent with the International Fisher Effect (IFE)? Why or why not?arrow_forward
- a = F + 0, B = S + 4 Q = T + 1. By using these values of a, B, and Q, Solve al| questions of the following questions. Consider %3D %3D %3Darrow_forwardYou, as the head of the derivatives division in an Investment bank, are trying to price a 6-month quarterly Interest rate swap contract with the notional amount of 100 million. Today (Jul 1, 2007) you observe the annualized 3-month LIBOR of 5.0% that is used for this quarter and the Eurodollar future price of $82 for the next quarter found from CMEgroup.com. You use the actual number of days per 360 basis for each period and found 92 days for both periods. The terms of the swap contracts specify the quarterly payments for floating cash flow. Determine the present value (P) of floating payments at the inception of the swap. 9 million <= PV O 7.5 million <= PV < 9 million O 6 million <- PV < 7.5 million 4.5 million <- PV < 6 million O PV < 4.5 millionarrow_forwardThe monetary (currency) unit of another country, A, has a present exchange rate of 10.7 units per U.S. dollar. Solve, (a) If the average devaluation of currency A in the international market is estimated to be 4.2% per year (for the next five years) relative to the U.S. dollar, what would be the exchange rate three years from now? (b) If the average devaluation of the U.S. dollar (for the next five years) is estimated to be 3% per year relative to currency A, what would be the exchange rate three years from now?arrow_forward
- Assume that on Friday, August 1, you buy one Chicago Board of Trade September Treasury bond futures contract at the opening price of $97800. The initial margin requirement is $2500 and the maintenance margin requirement is $2000. The settlement price of the contract at closing on that day is $97400. The settlement price of the contract at closing on the next business day (August 4) is $98000. Your margin account balance at the end of the day on August 4 is $_______arrow_forwardThe Nobel Prize is administered by The Nobel Foundation, a private institution that was founded in 1900 based on the will of Alfred Nobel, the inventor of dynamite. In part, his will stated: “The capital shall be invested by my executors in safe securities and shall constitute a fund, the interest on which shall be annually distributed in the form of prizes to those who, during the preceding year, shall have conferred the greatest benefit on mankind.” The will further stated that the prizes were to be awarded in physics, chemistry, peace, physiology or medicine, and literature. In addition to a gold medal and a diploma, each recipient receives a substantial sum of money that depends on the Foundation’s income that year. The first Nobel Prize was awarded in 1901 in the amount of $150,000. In 1996, the award was $653,000; it was $1.03 million in 2014. (a) If the increase between 1996 and 2014 was strictly due to inflation, what was the average inflation rate per year during that 18-year…arrow_forwardYou are the managing Director of Sunkwa limited a food processing company based in Atlanta in the United States of America. You are planning to visit Geneva, Switzerland in three months’ time to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. REQUIRED;(i) Calculate your expected dollar cost of buying SF5, 000 if you choose to hedge via call option on SF. (ii) calculate the future dollar cost…arrow_forward
- Felipe borrowed $1000 from Gustavo in 1998 when the Phil P - US$ exchange rate was P56 - US$1. On March 1, 2018, Felipe tendered to Gustavo a cashier's check in the amount of P4,135 in payment of his US$ 1000 debt, based on the Phil P - US$ exchange rate at that time. Gustavo accepted the check, but forgot to deposit it until Sept. 12, 2008. His bank refused to accept the check because it had become stale. Gustavo now wants Felipe to pay him in cash the amount of P5,600. Claiming that the previous payment was not in legal tender, and that there has been extraordinary deflation since 2008, and therefore, Felipe should pay him the value of the debt at the time it was incurred. Felipe refused to pay him again, claiming that Gustavo is estopped from raising the issue of legal tender, having accepted the check in March, and that it was Gustavo's negligence in not depositing the check immediately that caused the check to become stale. Can Gustavo now raised the issue that the cashier's check…arrow_forwardGary Watson, a graduating business student at a small college, is currently interviewing for a job. Gary was invited by both Tilly Manufacturing Co. and Watson Supply Company to travel to a nearby city for an interview. Both companies have offered to pay Gary’s expenses. His total expenses for the trip were $96 for mileage on his car and $45 for meals. As he prepares the letters requesting reimbursement, he is considering asking for the total amount of the expenses from both employers. His rationale is that if he had taken separate trips, each employer would have had to pay that amount. How are the other students and professors at the college potentiall affected by Gary's decision? Why is the correct thing to do? What should Gary do if both companies sent a check to cover expenses without sneding a request for the reimbursment?arrow_forwardTo make CDs look more attractive as an investment than they really are, some banks advertise that their rates are higher than their competitors' rates; however, the fine print says that the rate is based on simple interest. If you were to deposit $16,000 at 10.00% per year simple interest in a CD, what compound interest rate would yield the same amount of money in 3 years? (Round the final answer to three decimal places.) The compound interest rate that would yield the same amount of money in 3 years is % per year.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Principles of Economics (12th Edition)EconomicsISBN:9780134078779Author:Karl E. Case, Ray C. Fair, Sharon E. OsterPublisher:PEARSONEngineering Economy (17th Edition)EconomicsISBN:9780134870069Author:William G. Sullivan, Elin M. Wicks, C. Patrick KoellingPublisher:PEARSON
- Principles of Economics (MindTap Course List)EconomicsISBN:9781305585126Author:N. Gregory MankiwPublisher:Cengage LearningManagerial Economics: A Problem Solving ApproachEconomicsISBN:9781337106665Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike ShorPublisher:Cengage LearningManagerial Economics & Business Strategy (Mcgraw-...EconomicsISBN:9781259290619Author:Michael Baye, Jeff PrincePublisher:McGraw-Hill Education
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education