Cross-rates and arbitrage

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Demonstrate your understanding of financial concepts by completing the following problems. Where appropriate, show or explain your work. You may use Excel to work the problems.

Problem 1.Cash Equation: Bettendorf Corporation has a book net worth of $17,800. The company's long-term debt is $6,900. Its net working capital, excluding cash, is $1,600. Its fixed assets are $21,300. How much cash does the company have? If the current liabilities are $2,575, what are the current assets?

Problem 2. Rights Offerings: Borkin, Incorporated is proposing a rights offering. Currently, there are 560,000 shares outstanding at $85 each. There will be 65,000 new shares offered at $84 each. Calculate each of the following:

  • he new market value of the company.
  • The number of rights that are associated with one of the new shares.
  • The ex-rights price.
  • The value of a right.

Problem 3. Using Spot and Forward Exchange Rates: The spot exchange rate for the Canadian dollar is Can $1.14 and the six-month forward rate is Can $1.17. Calculate whether a U.S. dollar or a Canadian dollar is worth more.

Problem 4. Cross-Rates and Arbitrage: The Japanese yen exchange rate is ¥96=$1, and the British pound exchange rate is £1=$1.72. Calculate the cross-rate in terms of yen per pound.

 

 

Reference no: EM13295596

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