What forward exchange rate prevent covere interest arbitrage

Assignment Help Finance Basics

Reference no: EM13897871

1. Suppose the 5-year interest rate on a dollar- denominated pure discount bond is 4.5% p.a. and the interest rate on a similar pure discount euro-denominated bond is 7.5% p.a. If the current spot rate is $1.08> :, what forward exchange rate prevents covered interest arbitrage?

2. Carla Heinz is a portfolio manager for Deutsche Bank. She is considering two alternative invest- ments of EUR10,000,000: 180-day euro deposits or 180-day Swiss franc (CHF) deposits. She has decided not to bear transaction foreign exchange risk. Suppose she has the following data: 180- day CHF interest rate of 8% p.a.; 180-day EUR interest rate of 10% p.a.; spot rate of EUR1.1960 > CHF; and 180-day forward rate of EUR1.2024> CHF. Which of these deposits provides the higher euro return in 180 days? If these were actually market prices, what would you expect to happen?

Reference no: EM13897871

Questions Cloud

What is the normal force that the floor exerts on the chair : A chair of weight 90.0 N lies atop a horizontal floor; the floor is not frictionless. What is the normal force that the floor exerts on the chair

What is a money market hedge and how is it constructed : What is a money market hedge? How is it constructed? Suppose you are the French representative of a company selling soap in Canada.

What is the term structure of interest rates : What is a pure discount bond? What is the term structure of interest rates? How are spot interest rates determined from coupon bond prices?

What is the actual present value of the prize : If the Prize Patrol visits your house to inform you that you have won, it offers you $333,333.33 each and every year for 30 years. If the interest rate is 8% p.a., what is the actual present value of the $10,000,000 prize?

What forward exchange rate prevent covere interest arbitrage : The interest rate on a similar pure discount euro-denominated bond is 7.5% p.a. If the current spot rate is $1.08> :, what forward exchange rate prevents covered interest arbitrage?

What is the annualized interest rate on swiss francs : Suppose spot rate is CHF1.4706 > $, and the 180-day forward rate is CHF1.4295 >$. If 180- day dollar interest rate is 7% p.a., what is the annualized 180-day interest rate on Swiss francs that would prevent arbitrage?

Briefly list a historical evolution of epidemiology : Briefly list a historical evolution of epidemiology

What times in the reference frames of the earth : Two rockets A and B depart from Earth at steady speeds of 0.6c in opposite directions, having synchronized clocks with each other and with Earth at departure. After one year as measured in Earth's reference frame, rocket B emits a light signal. At..

Examples of roman engineering : This posting utilizes three examples of Roman engineering to provide the following information:

User Account

All Pages