Believe in the international fisher effect

Assignment Help Financial Management
Reference no: EM131921624

Assume the Hong Kong dollar (HK$) value is tied to the U.S. dollar and will remain tied to the U.S. dollar. Assume that interest rate parity exists. Today, a euro (€) is worth $1.50 and HK$7.10. The one-year interest rate on euro is 2%, while the one-year interest rate on the U.S. dollar is 7%. You believe in the International Fisher effect.

Boston company will receive €4 million in one year from selling products to Europe, and will convert these proceeds into Hong Kong dollars in the spot market at that time to purchase imports from Hong Kong.

Estimate the amount of U.S. dollars that Boston will receive in one year when converting its € receivables into U.S. dollars. (1.25 Points)

Forecast the amount of Hong Kong dollars that Boston will be able to purchase in the spot market one year from now with €4 million. (1.25 Points)(Hint: Since HK$ is pegged to USD, the value change between € and HK$ one year later is going to be exactly the same as that between USD and €)

Reference no: EM131921624

Questions Cloud

How to build the mpi form and the admits form : Follow the attached step-by-step instructions on how to build the MPI form and the Admits form. Why these forms are important and how they can be used.
Role of preparation and the clinical knowledge : Need help fixing this thesis statement. An individual that possesses a BSN versus an ADN is influenced by different choices
What was the standard deviation of the returns over period : What was the arithmetic average return on the stock over this five-year period? What was the standard deviation of the returns over this period?
Cruise through the cyclades and all hot accommodations : The travel package includes a roundtrip ticket to Athens a cruise through the Cyclades and all hot accommodations
Believe in the international fisher effect : while the one-year interest rate on the U.S. dollar is 7%. You believe in the International Fisher effect.
Write two pages expressing your current worldview : Write two pages (not including your title page) expressing your current worldview in regard to the subject of Administration of Justice Organizations.
Gossip or toxic conversations : As a supervisor of a team of 5 I often have personality issues among the team. One of my largest issues is when we have gossip or toxic conversations among them
What do ioc sponsorships cost : What do IOC sponsorships cost? Indicate three (3) tiers of Olympic sponsor packages and how they differ, noting the Games' years with the costs.

Reviews

Write a Review

Financial Management Questions & Answers

  Evaluate generation project with the cash flows

Howell Petroleum, Inc., is trying to evaluate a generation project with the following cash flows: Year Cash Flow 0 –$43,000,000 1 67,500,000 2 –18,000,000. If the company requires a 11 percent return on its investments, what is the NPV of the project..

  Classified shares have super-voting rights

The ceo of Echostar commmunications, Charlie Ergen, owned around 5% of the company's stock, but his multiple votes per share gave him around 90% of the vote. Based on this example, which of the following statements is true?classified shares have supe..

  According to the static theory of capital structure

According to the static theory of capital structure, a firm borrows up to which one of the following points? point where the firm is financed totally with debt

  Calculate the company cost of equity capital

Calculate the company's cost of equity capital using both the dividend capitalization model and the CAPM approach.

  Record the carry back and carry forward decision

Colorado Company has provided you the following information. The enacted tax rate remains at 40% after year 2017. Colorado Company has determined that a valuation allowance is not necessary. Prepare the journal entry on December 31, 2017 to record th..

  Does it take marios to sell its inventory

Mario's Home Systems has sales of $2,840, costs of goods sold of $2,180, inventory of $508, and accounts receivable of $432. How many days, on average, does it take Mario's to sell its inventory?

  Considered as the advantage of payback period

Which of the following is not considered as the advantage of payback period?

  Calculate the net investment for the new line

The Fleming Company, a food distributor, is considering replacing a filling line at its Oklahoma City warehouse.- calculate the net investment for the new line.

  Monthly rate of simple interest was charged on the loan

Laura was charged interest of $163.48 for a loan amount of $3,400.00 that she borrowed for 150 days. What monthly rate of simple interest was charged on the loan?

  Authors advise to count the dollars and not the pennies

In All Your Worth the authors advise to "Count the Dollars, Not the Pennies".

  What is the most she should pay for this cash flow stream

Mary has the opportunity to buy the following cash flows per year beginning next year: 1) $1,000; 2) $1,000; 3) $1,000; 4) $1,000; 5) $1,000; 6) $1,000; 7) $1,000; 8) $1,000; 9) $1,000; 10) $1,000. If she can invest any funds to earn 6.35%, what is t..

  What must google net income be so that residual income

Currently analysts’ expect Google (Alphabet) to have Net income of $11.8B during the current fiscal year. At the start of the fiscal year Google had shareholders equity of $120B. Investors in Google’s shares have a 10% cost of capital. Using the Resi..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd