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.

User Account

All Pages