Question
The 12-month interest rate on dollar-denominated assets (like bank deposits) is 2.00%. The 12- month interest rate on euro-denominated assets is 4.50%. The current spot
The 12-month interest rate on dollar-denominated assets (like bank deposits) is 2.00%. The 12- month interest rate on euro-denominated assets is 4.50%. The current spot exchange rate is $1.15 per euro. The current forward exchange rate is $1.05 per euro. You have an initial dollar fund of $100,000. Suppose that you decide to invest your dollar fund in euro-denominated assets while also using the forward exchange market to hedge against the exchange risk
8. To hedge against the foreign exchange risk, you should enter currently a 12-month forward contract to sell the foreign change of ________ based on ________ quoted today.
A) 92,750.25 billions; the forward exchange rate B) 90,869.57; the forward exchange rate C) 89,925.93; the spot exchange rate D) none of the above
9. From the covered interest arbitrage, your dollar fund will change to a certain amount equal to _______ in 12 months.
A) $93,896.78 B) $94,791,25 C) $95,413.04 D) none of the above
10. From the covered interest arbitrage, the dollar-denominated rate of return on your euro deposits is about equal to _______ within 12 months.
A) 4.50% B) -3.35% C) -4.59% D) none of the above
11. From the covered interest arbitrage, the euro-denominated rate of return on your euro deposits is about equal to _______ within 12 months.
A) 4.50% B) -3.35% C) -4.59% D) none of the above
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