Compute the equilibrium or arbitrage-free myr

Assignment Help Finance Basics
Reference no: EM132601934

(a) The ISO currency code for the Indonesian Rupiah is IDR, and the code for the Malaysian Ringgit is MYR. Suppose that a basket of goods costs MYR110.00 in Malaysia, and the same basket of goods costs IDR362,760.70 in Indonesia.

(i) Compute the equilibrium or arbitrage-free MYR/IDR spot exchange rate.

(ii) Suppose that the actual MYR/IDR spot exchange rate is 3,292.37. Does an opportunity to engage in a commodity arbitrage exist? If your answer is `yes,' describe the commodity arbitrage process. Describe in which country the arbitrageur would buy one basket of goods and sell in which country at what price. Also, explain the amount of profit in MYR. Use a single basket of goods in your discussion. Assume that there is no restriction on movements of goods across the two countries and also assume no transportation or any other costs.

(b) Suppose that the 6-month nominal risk-free rate in Indonesia is 6.5 percent, and the 6-month nominal risk-free interest rate in Malaysia is 5.5 percent. Compute the 6-month forward MYR/IDR exchange rate. Use the spot MYR/IDR exchange rate from part (a.ii) above, which is equal to 3,292.37.

Reference no: EM132601934

Questions Cloud

Find the fair value of the stock today : (a) Find the fair value of the stock today, if the annual cost-of-capital is 14%.
Impact of lagging leadership creativity : Journal article focus on the how positive team culture can correct the impact of lagging leadership creativity.
Find the value of a 3-month european put option : Consider a stock that is trading at $100 a share. The annual volatility of the stock is 20 percent, and the 3-month nominal risk-free interest rate is 8 percent
Make the journal entry to record the repurchase of share : Sahali Corp. issued 1,000,000 common shares at $13 a share during April 2014. Prepare the journal entry to record the repurchase of the shares.
Compute the equilibrium or arbitrage-free myr : The ISO currency code for the Indonesian Rupiah is IDR, and the code for the Malaysian Ringgit is MYR.
Find how much money would paid on partially secured debt : Fnd how much money would be paid on the partially secured debt? On filing a bankruptcy petition, a corporation has the assets and liabilities
Data adjustments affects : Kirk (2016) tells us that data adjustments affects what data is displayed and presentation adjustments affects how the data is displayed.
Critique on the interpersonal : Critique on the interpersonal/communication skills and techniques displayed by the nurse (in a video provided), during a comprehensive mental health assessment
Prepare journal entries to record transactions on eagle ltd : On 2 March Panther Ltd sold $917,000 of inventory, Prepare journal entries to record the transactions on Eagle Ltd's books using a perpetual inventory system.

Reviews

Write a Review

Finance Basics Questions & Answers

  Computing the current cost of capital

Problem: Tessa wants to buy or lease a printing machine. The printing machine costs $7000 right now and it would last only 10 years.

  What bond payable amount will park report

Park Corporation is planning to issue bonds with a face value of $720,000 and a coupon rate of 7.5 percent. The bonds mature in 4 years and pay interest.

  In order for a derivatives market to function most

in order for a derivatives market to function most efficiently two types of economic agents are needed hedgers and

  Which of following statements about exchange rates is true

Which of the following statements about exchange rates is true?

  What is the molarity of the phosphoric acid

If a 25.0 mL sample of phosphoric acid, H3PO4, is completely neutralized by 137 mL of 0.100 M KOH, what is the molarity of the phosphoric acid?

  Weekly tasks or assignments individual or group projects

weekly tasks or assignments individual or group projects will be due by monday and late submissions will be assigned a

  What is the probability that the average waiting time

What is the probability that the average waiting time for a random sample of ten customers is between 4.0 and 4.2 minutes?

  How would increase in company profits affect payout ratio

All else equal, how would an increase in personal tax rates affect companies' dividend payout ratios How would an increase in company profits affect the dividend payout ratios Why

  What is the current price of the bond

A bond has a maturity date of 4 years, an annual coupon rate of 10% and an annual yield of 14%. If the coupon payments are monthly, what is the current price

  Construct simple cash flow statement and payback calculation

It may surprise you that there are cash flows associated with holding a job. Construct a simple cash flow statement and payback calculation for when your job expenses will be covered for employment you currently have or have had in the past

  The dicker company has the following pattern of financial

the dicker company has the following pattern of financial data for years 1 and 2year 1year 2net income 40000

  In general terms how would a change in investment

in general terms how would a change in investment opportunities affect the payout ratio under the residual payment

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