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The price of silver in the U.K. is £12.00/oz. The price of silver in the U.S. is $18.00/oz. a. What should the $/£ spot exchange rate be according to the Law of One Price (LOP)? b. If the actual ex-rate is $1.5125/£, and the silver prices in each country stay the same, calculate and report the price of an ounce of silver in both countries, expressed in one common currency (either pound or dollars). Then explain in words how you could make arbitrage profits. c. For an arbitrage trade with 100,000 ounces of silver, calculate and report your arbitrage profits, showing each separate transaction, starting with the purchase of 100,000 ounces of silver in one country and explaining each transaction in words. Express the profit in both dollars and pounds. d. Based on part b (S = $1.5125/£), explain in an essay what would happen to silver prices in each country (up or down?) and explain exactly why the prices would change (what specific market forces are at work?), and explain what would happen to the dollar, the pound, and the spot rate S($/£), and explain why they would all change to restore the LOP. Answer in full sentences.
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Why should European MNCs consider hedging their future remittances from Indonesia to their parent even when the forward discount on the currency (rupiah) is so large?
The NPV and IRR rules will always lead to the same decision unless one or both of the projects are "non-normal" in the sense of having only one change of sign in the cash flow stream, i.e., one or more initial cash outflows (the investment) followed ..
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You were recently having a family dinner with your uncle who is a Senior Vice-President at one of the companies that produces auto parts. He told you, during the dinner, that he has received an offer to be the CEO of another auto part manufacturing c..
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Company X wants to acquire another similar company. It estimates that net cash flows for the acquired company will be $8,500,000 per year for 10 years. The cost is $50,000,000. The company's cost of capital is 10 percent. Calculate NPV, IRR, and MIRR..
Which one of the following best defines the term credit scoring?
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