Reference no: EM13930015
a) Assume that interest rate parity holds. In the spot market 1 Japanese yen = $0.01, while in the 180-day forward market 1 Japanese yen = $0.0108. 180-day risk-free securities yield 1.1% in Japan. What is the yield on 180-day risk-free securities in the United States? Round your answer to 2 decimal places. Do not round intermediate calculations.
b) In the spot market, 2.51 Brazilian real can be exchanged for 1 U.S. dollar. An Apple iPad Air costs $620 in the United States. If purchasing power parity (PPP) holds, what should be the price of the same iPad Air in Brazil? Round your answer to the nearest whole number. Do not round intermediate calculations.
c) International Machinery Company (IMC) is a Swedish multinational manufacturing company. Currently, IMC's financial planners are considering undertaking a 1-year project in the United States. The project's expected dollar-denominated cash flows consist of an initial investment of $2,850 and a cash inflow the following year of $3,400. IMC estimates that its risk-adjusted cost of capital is 16%. Currently, 1 U.S. dollar will buy 6.0 Swedish kronas. In addition, 1-year risk-free securities in the United States are yielding 5%, while similar securities in Sweden are yielding 4%.
- If the interest parity holds, what is the forward exchange rate of Swedish krona per U.S. dollar? Round your answer to 2 decimal places. Do not round intermediate calculations.
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