Suppose the following facts apply: Spot currency rate ($/ = $1.28); Forward exchange rate for 1 year delivery = $1.25; US 1-year interest rate: rUS =4%; Euro 1-year interest rate: rE = 7%; Amount to invest = $5,000,000. You reside in the United States but wish to invest your $5 million in the 1-year European bonds. In order for interest rate parity to hold, what must the forward exchange rate be?

		$1.8648
		$1.3312
		$1.2501
		$1.2441
		None of the above

1 points

QUESTION 4

The direct spot exchange rate quote for Canadian dollars (C$) is $0.72USD/C$. What is the indirect quote?

		1.18C$/USD
		1.39C$/USD
		$0.72/C$
		13.90C$/USD
		None of the above is correct

1 points

QUESTION 5

FORWARD CURRENCY CONTRACT. FOR THIS AND THE NEXT 2 QUESTION. Today, a US firm agrees to buy merchandise from Mexico worth 12 million Mexican pesos. The merchandise will be delivered in 60 days with payment to be made in 90 days (that is, 30 days after the goods are received). The current exchange rate is 16.40 pesos per USD. The US firm is afraid the dollar will depreciate against the peso by the payment date, which will make the dollar-cost of the merchandise more expensive than it is today. To hedge this risk, the US firm buys enough Mexican pesos in the 90-day forward market to completely cover the total cost of the merchandise. The 90-day forward exchange rate is 14.45 pesos per USD. Suppose that 90 days from now, when it's time to make payment, USD has lost 20 percent of its value. First, how much is the dollar value of the merchandise today?

		$731,707.32
		$776,699.03
		$830,449.83
		$914,634.15
		None of the above

1 points

QUESTION 6

Without forward contract, what will be the total dollar cost of the merchandise 90 days from now?

		$731,707.32
		$776,699.03
		$830,449.83
		$914,634.15
		None of the above

1 points

QUESTION 7

With forward contract, how much will the US firm pay in 90 days - in USD?

		$731,707.32
		$776,699.03
		$830,449.83
		$914,634.15
		None of the above

1 points

QUESTION 8

FOR THIS AND THE NEXT 4 QUESTIONS. Suppose there is an interest rate spread of 1% between the United States and South Africa (S.A.). The yield on a one-year U.S. Treasury security is 5% (rd = 5%) while the yield on a comparable South African security is 6% (rF = 6%). You wish to invest $50,000. The indirect quote for the rand-dollar (R/$) spot exchange rate is 7 South African rands (R7) per dollar. Suppose you invest your funds in U.S. securities for 6 months. Calculate the future value of your investment.

		$51,250
		$53,000
		$51,500
		$50,500
		None of the above

1 points

QUESTION 9

If, instead, you invested your funds in South African securities for 6 months, what is the future value of your investment?

		R 360,500
		R 358,750
		R 53,000
		R 51,500
		R 371,000

1 points

QUESTION 10

To cover your South African investment, you agree today to exchange the South African rand earnings in 6 months at the 6-month forward exchange rate of R7.125. How much will you receive in U.S. dollars in 6 months?

		$2,568,562.50
		$51,500
		$49,122.81
		$50,596.49
		None of the above