Can you show me how to solve these.
Please answer the next 8 questions based on the following information. Please use the exact, and NOT the approximate formula to answer all questions. Suppose you have a credit line of $6,000,000 in the US and Euros 5,000,000 in Euro zone, and that you can borrow and lend at the prevailing rates of interest in these two areas. Current spot rate of Euro = $1.200; Expected spot rate for Euro, one year from now =$1.164; Interest rate in the U.S. = 7.50%; Interest rate in the Euro zone = 12.50% 12. If the 1-year current forward rate for Euro is $1.152. vour covered rate of return will be: a. 3.200% b. 8.000% c. 9.125% d. 17.000% 13. If the current l-year forward rate for Euro is $1.152 and you wanted to set up a covered interest rate arbitrage, you should borrow in and invest in a. US Dollars; Euros b. Euros; US Dollars 14. Based on the previous question, which of the following should result from covered interest arbitrage a. Downward pressure on the Euro spot rate. b. Downward pressure on the Euro forward rate. c. Downward pressure on the U.S. interest rate. d. Upward pressure on the Euro zone interest rate. 15. If the 1-year current forward rate for Euro is $1.152, your covered interest arbitrage profit will be: a. $ 48,000 b. $ 30,000 c. $128,400 d. $314,694 16. If the 1-year current forward rate for Euro is $1.140, your covered rate of return will be: a. 4.860% b. 6.875% c. 8.000% d. 12.245% 17. If the current 1-year forward rate for Euro is $1.140 and you wanted to set up a covered interest rate arbitrage, you should borrow in and invest in a. US Dollars; Euros b. Euros; US Dollars 18. Based on the previous question, which of the following forces should result from covered interest arbitrage a. Downward pressure on the Euro spot rate. b. Downward pressure on the Euro forward rate. c. Upward pressure on the U.S. interest rate. d. Downward pressure on the Euro zone interest rate. 19. What should be the current forward premium for Euro according to Interest Rate Parity? a. - 4.44% b. -1.78% c. 4.65% d. 95.55% Please answer the next 8 questions based on the following information. Please use the exact, and NOT the approximate formula to answer all questions. Suppose you have a credit line of $6,000,000 in the US and Euros 5,000,000 in Euro zone, and that you can borrow and lend at the prevailing rates of interest in these two areas. Current spot rate of Euro = $1.200; Expected spot rate for Euro, one year from now =$1.164; Interest rate in the U.S. = 7.50%; Interest rate in the Euro zone = 12.50% 12. If the 1-year current forward rate for Euro is $1.152. vour covered rate of return will be: a. 3.200% b. 8.000% c. 9.125% d. 17.000% 13. If the current l-year forward rate for Euro is $1.152 and you wanted to set up a covered interest rate arbitrage, you should borrow in and invest in a. US Dollars; Euros b. Euros; US Dollars 14. Based on the previous question, which of the following should result from covered interest arbitrage a. Downward pressure on the Euro spot rate. b. Downward pressure on the Euro forward rate. c. Downward pressure on the U.S. interest rate. d. Upward pressure on the Euro zone interest rate. 15. If the 1-year current forward rate for Euro is $1.152, your covered interest arbitrage profit will be: a. $ 48,000 b. $ 30,000 c. $128,400 d. $314,694 16. If the 1-year current forward rate for Euro is $1.140, your covered rate of return will be: a. 4.860% b. 6.875% c. 8.000% d. 12.245% 17. If the current 1-year forward rate for Euro is $1.140 and you wanted to set up a covered interest rate arbitrage, you should borrow in and invest in a. US Dollars; Euros b. Euros; US Dollars 18. Based on the previous question, which of the following forces should result from covered interest arbitrage a. Downward pressure on the Euro spot rate. b. Downward pressure on the Euro forward rate. c. Upward pressure on the U.S. interest rate. d. Downward pressure on the Euro zone interest rate. 19. What should be the current forward premium for Euro according to Interest Rate Parity? a. - 4.44% b. -1.78% c. 4.65% d. 95.55%
