Determine the net gain from a covered position

Assignment Help Financial Management

Reference no: EM131334823

Mammouth Mutual Fund of New York has $5 million to invest in certificates of deposit (CDs) for the next six months (180 days). It can buy either a Philadelphia National Bank (PNB) CD with an annual yield of 10 percent or a Zurich (Switzerland) Bank CD with a yield of 12.5 percent. Assume that the CDs are of comparable default risk. The analysts of the mutual fund are concerned about exchange rate risk. They were quoted the following exchange rates by the international department of a New York City bank:

Switzerland (CHF)
Spot	$ 0.4200
30-day forward	0.4190
90-day forward	0.4170
180-day forward	0.4155

a. If the Zurich bank CD is purchased and held to maturity, determine the net gain(loss) in U.S. dollars relative to the PNB CD, assuming that the exchange rate in 180 days equals today's spot rate.

b. Suppose the Swiss CHF declines in value by 5 percent relative to the U.S. dollar over the next 180 days. Determine the net gain (loss) of the Zurich Bank CD in U.S. dollars relative to the PNB CD for an uncovered position.

c. Determine the net gain (loss) from a covered position.

d. What other factor or factors should be considered in the decision to purchase the Zurich Bank CD?

Reference no: EM131334823

Questions Cloud

Keynesian macro-economic model focuses solely : The basic (primitive) Keynesian macro-economic model focuses solely upon the determination of equilibrium in the real sector (goods market). This is made possible by the assumption that the interest rate (RD) is constant.

What is a potential drawback of this kind of media : What is a potential drawback of this kind of media? Describe the experience of participating in this exercise. Paste a screenshot of the social media account you just created in your assignment paper.

Create an analysis of the patient care financial problem : Based upon your review of the literature and interviews, create an analysis of the patient care financial problem and identify two or more financial problems

What steps should a trader in new york take : Suppose the British short-term interest rate is 13 percent and the corresponding U.S. rate is 8 percent.- If so, what steps should a trader in New York take? What annual rate will the trader earn?

Determine the net gain from a covered position : Determine the net gain (loss) from a covered position.- What other factor or factors should be considered in the decision to purchase the Zurich Bank CD?

Develop a worksheet that details your personal expenses : For this assignment you will use Microsoft Excel to develop a worksheet that details your personal expenses in at least four categories from the last three months.

Heritage foundation guide for policy-makers : After reading the Heritage Foundation's guide for policy-makers, give one example from your own life of of a way in which you have benefitted from free trade. Is there any way in which you have been hurt by free trade, but that this article does ..

Find the permeability of each material : If a magnetizing force H of 600 At/m is applied to a magnetic circuit, a flux density B of 1200 × 10-4 Wb/m2 is established. Find the permeability m of a material that will produce twice the original flux density for the same magnetizing force

Employment and unemployment rates : Discuss and contrast how your Metropolitan Area and State employment and unemployment rates compared to the Rest of the U.S. by briefly summarizing the information within these categories.

User Account

All Pages