What are your thoughts on the below scenarios and provide an explanation as well:- Borrowing in foreign currency

1.A U.S. company is considering borrowing in euros (EUR).

The borrowing rate in EUR is 2 percent per year.

The spot exchange rate is 1.2 USD/EUR.

The one-year forward exchange rate is 1.22 USD/EUR.

Suppose you fully hedge the exchange rate risk of the loan. What does the 2 percent interest rate in EUR correspond to in USD?

2.A Mexican firm is thinking about borrowing in USD at 3 percent per year.

The spot exchange rate for the Mexican peso (MXN) is 20 MXN /USD.

The one-year forward rate is 21 MXN/USD.

Suppose you fully hedge the exchange rate risk of the loan.

What does the 3 percent interest rate in USD correspond to in MXN?

What are your thoughts on the below scenarios and provide an explanation as well:-Cost of capital in foreign currency

1.Your company has an equity cost of capital in USD of 10 percent.The data is as follows

Risk free rate U.S.: 2 percent per annum

Risk free rate Brazil: 9 percent per annum

What is the equitycost of capital converted into Brazilian real (BRL)?

2.Your company has an equity cost of capital in EUR of 8 percent. You would like to convert this cost of capital into Indian Rupee (INR) to evaluate a project in India. The data is as follows

Risk free rate EUR: 2 percent per annum

Risk free rate India: 9 percent per annum

What are your thoughts on the below scenarios and provide an explanation as well:- Synthetic forwards

1.You want to sell 1 million British (GBP) in one year using a synthetic forward.

The one-year interest rate in 1 percent in GBP and 2 percent in USD.

The current spot exchange rate is 1.3 USD/GBP.

What is the synthetic USD/GBP forward rate?

2.You want to buy 1 million Colombian pesos (COL) in one year using a synthetic forward. The one-year interest rate in 7 percent in COL and 2 percent in USD. The current spot exchange rate is 3700 COL/USD.

What is the synthetic forward rate quoted as COL/USD?

What are your thoughts on the below scenarios and provide an explanation as well:-Using forward contracts

1 (a) - Six months ago, you bought 1 million Euros at a forward rate of 1.200 USD/EUR. This contract matures today, and the spot exchange rate is 1.100 USD/EUR.

What is the profit from the forward contract in USD?

1(b) - Six months ago, you bought 1 million Euros at a forward rate of 1.200 USD/EUR. This contract matures today, and the spot exchange rate is 1.100 USD/EUR.

What is the profit from the forward contract in EUR?

2 (a) - One year ago, you sold 1 million British pounds (GBP) at a forward rate of 1.25 USD/GBP. This contract matures today, and the spot exchange rate is 1.30 USD/GBP.

What is the profit from the forward contract in GBP?

2 (b) One year ago, you sold 1 million British pounds (GBP) at a forward rate of 1.25 USD/GBP. This contract matures today, and the spot exchange rate is 1.30 USD/GBP.

What is the profit from the forward contract in GBP?

3.Two years ago you sold forward 1 million Canadian dollars (CAD) at a forward rate of 0.800 USD/CAD. You have no CAD, so this transaction is what we would call a "naked forward." The forward contract matures today and the spot exchange rate is 0.7850 USD/CAD.

What is the profit from the forward contract in USD?