What is the one-year forward rate

Assignment Help Financial Management

Reference no: EM131969342

1. Assume annualized interest rates in the U.S. and United Kingdom are 4% and 6%,respectively, and one pound is worth $1.35.

(a) What is the one-year forward rate that makes you indifferent between investing in the U.S. and investing in the U.K?

(b) What is the one-year forward rate that makes you prefer the UK investment overthe US investment?

2. Consider Problem 3, again.

(a) Does uncovered interest parity predict an 180-day appreciation or depreciation ofthe pound against the U.S. dollar?

(b) What is the expected 180-day spot rate under no arbitrage?

(d) Answer all questions again using the opposite exchange rate ($/£ or £/$).

Reference no: EM131969342

Questions Cloud

What is the margin on the short position : What is the remaining margin in the account? What is the margin on the short position?

Describe your strategy and quantify the arbitrage profit : Would you invest in Australia or in the United States? Why? Describe your strategy and quantify the arbitrage profit, if any.

What would happen to price of the bonds over time : Two years after the bonds were issued, the going rate of interest on bonds such as these fell to 6%. What would happen to the price of the bonds over time?

Margin in dee account when she first purchases the stock : What is the margin in Dee’s account when she first purchases the stock?

What is the one-year forward rate : What is the one-year forward rate that makes you indifferent between investing in the U.S. and investing in the U.K?

Short-sell-what is your maximum possible loss : What is your maximum possible loss? What happens to the maximum loss if you simultaneously place a stop-buy order at $141.20?

Present value calculation : Present Value Calculation. Calculate the PV of a 2-year annuity paying $10 each time at the discount rate of 10%.

What is the total cost to drk of the equity issue : What is the total cost to DRK of the equity issue? Is the entire cost of the underwriting a source of profit to the underwriters?

Expected exchange rate in one year under no arbitrage : What is the expected exchange rate in one year under no arbitrage? Verify that UFR holds.

User Account

All Pages