Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

i need help with question 14,15 Question 14 1 pts A U.S.-based currency dealer has good credit and can borrow $1,000,000 or 800,000 for one

i need help with question 14,15
image text in transcribed
Question 14 1 pts A U.S.-based currency dealer has good credit and can borrow $1,000,000 or 800,000 for one year. The one-year interest rate in the U.S. is i$ = 3% and in the euro zone the one-year interest rate is i = 4%. The spot exchange rate is $1.15 - 1.00 and the one-year forward exchange rate is $1.10 = 1.00. Show how to realize a certain euro profit via covered interest arbitrage. Borrow 800,000 at i = 4%; translate to dollars at the spot, invest in the U.S. at i$ = 3% for one year, translate all dollar back into euro at the forward rate of $1.10 = 1.00. Net profit 29,454. Borrow 800,000 at i = 4%; translate to dollars at the spot, invest in the U.S. at i$ - 3% for one year, translate part of dollar back into euro at the forward rate of $1.10 = 1.00. Net profit $34,529. Borrow 800,000 at i - 4%; translate to dollars at the spot, invest in the U.S. at i$ = 3% for one year, translate all dollar back into euro at the forward rate of $1.10 - 1.00. Net profit 37,981. Question 15 1 pts Suppose annual inflation rates in the U.S. and Mexico are expected to be 4% and 40%, respectively. If the current spot rate for the Mexican peso is $.009, then the best estimate of the peso's spot value in 90 days is: $0.0083 $0.0062 O $0.0052 $0.0043

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Corporate Financial Management

Authors: Julian Ralph Franks, Harry H. Scholefield

2nd Edition

0566020548, 978-0566020544

More Books

Students also viewed these Finance questions

Question

In what research projects are your students currently involved?

Answered: 1 week ago

Question

Describe employee assistance programs.

Answered: 1 week ago

Question

Describe the importance of physical fitness programs.

Answered: 1 week ago

Question

Discuss the factors that set the stage for global HR practice.

Answered: 1 week ago