Topic: International Finance

4. Exchange rates between two currencies. Freezeland (FZ) and the Icycold (LYD), are listed in the financial press as follows: Spot rate IYD$1 = FZ$4.7250 90-day IYD$1 = FZ$4.7506 FZ$1 = IYD$0.21164 forward rates FZ$1 = IYD$0.21050 The money market interest rate for 90 day deposits in Freezeland is 7.5% annualized. Using principle of interest rate parity approach, compute the interest rates of Icycold? Assume 360-day year. 5. A Canadian company is expecting to receive Kuwait dinars in one year's time. The spot rate is Canadian dollar 5.4670 per 1 dinar. The company could borrow in dinars at 9% or in Canadian dollars or in Canadian dollar at 14%. There is no forward rate for one year's time. Compute the expected future exchange rate Canadian dollar/dinar in one year. 6. The current Euro/US dollar exchange rate is 1: $2. Dire Co, a Eurozone company. makes a $2,000 sale to a US customer on credit. By the time the customer pays, the Euro has strengthened by 20%. Describe what it means by "Euro has strengthened..." b. Find how much is the Euro receipt is. a