Euro exchange rate for two-year forward contract

Assignment Help Financial Management

Reference no: EM131992541

1. The current currency spot rate is $1.31 per euro. If dollar denominated interest rates are 3.0% and euro denominated interest rates are 4.0%, what is the likely dollar per euro exchange rate for a 2-year forward contract?

$1.28

$1.30

$1.31

$1.33

2. Euro futures contracts are trade on:

Chicago Board of Trade

Chicago Merchantil Exchange

New York Stock Exchange

New York Merchantile Exchange

3. Which of the following is(are) correct regarding Interest Rate Parity?

I. If the foreign interest rate is less than the domestic interest rate, then the forward rate will be higher than the current spot rate.

II. If the foreign interest rate is more than the domestic interest rate, then the forward rate will be lower than the current spot rate.

III. The difference of foreign and domestic interest rate doesn't affect the forward rate

I only

I and II only

None of above

All of above

4. Interest rates on the U.S. dollar are 6.5% and euro rates are 5.5%. The dollar per euro spot rate is 0.950. What is the arbitrage profit on a required 1 million euro payment if the forward rate is 0.980 dollars per euro and the exchange occurs in one year?

$23,714

$20,452

$30,000

$39,453

5. If you enter into a short forward contract on Euro with forward rate 1.36 $/Euro, when the contract matures, you are obligated to buy Euro sell dollar at 1.36 $/Euro

Sell Euro buy dollar at 1.36 $/Euro

Buy dollar sell Euro at 0.735 $/Euro

Sell dollar buy Euro at 0.735 $/Euro

6. The current currency spot rate is $1.31 per euro. If dollar denominated interest rates are 3.0% and euro denominated interest rates are 4.0%, if you observe the 2-year forward rate is 1.36$/euro, you would set up the arbitrage position by short the forward, ____ $ risk-free asset, _____ $ at current spot rate, _____ Euro risk-free asset.

long, buy, short

long, sell, long

short, buy, long

short, sell, long

Reference no: EM131992541

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