Reference no: EM131223118
1. Assume the Hong Kong dollar (HK$) value is tied to the U.S. dollar and will remain tied to the U.S. dollar. Assume that interest rate parity exists. Today, an Australian dollar (A$) is worth $.50 and HK$3.9. The one-year interest rate on the Australian dollar is 11%, while the one-year interest rate on the U.S. dollar is 7%. You believe in the international Fisher effect.You will receive A$1 million in one year from selling products to Australia, and will convert these proceeds into Hong Kong dollars in the spot market at that time to purchase imports from Hong Kong. Forecast the amount of Hong Kong dollars that you will be able to purchase in the spot market one year from now with A$1 million. Show your work.
2. You believe that the Singapore dollar's exchange rate movements are mostly attributed to purchasing power parity. Today, the nominal annual interest rate in Singapore is 18%. The nominal annual interest rate in the U.S. is 3%. You expect that annual inflation will be about 4% in Singapore and 1% in the U.S. Assume that interest rate parity holds. Today the spot rate of the Singapore dollar is $.63. Do you think the one-year forward rate would underestimate, overestimate, or be an unbiased estimate of the future spot rate in one year? Explain.
3. Given S = £0.6361 and the 180-day Forward rate is £0.6352/$, what is the dollar forward premium? Based on the unbiased forward expectations hypothesis, by how much is the dollar expected to appreciate or depreciate over the next 180 days? Provide a forecast of the spot rate of exchange in 180 days.
4. Suppose $1.25/£ and the 1-year forward rate is $1.20/£. The real interest rate on a risk-free government security is 2 percent in both the United Kingdom and the United States. The US inflation rate is 5 percent.
a. What is the UK's inflation rate if the equilibrium relationships hold?
b. What is the UK's nominal required return on risk-free government securities?
5. Quotes for the US dollar and Thai Baht (Bt) are as follows:
Spot contract midpoint = Bt24.96/$
1-year forward contract midpoint = Bt25.64/$
1-year Eurodollar interest rate = 6.125% annually
a. Your newspaper does not quote 1-year Eurocurrency interest rates on Thai baht. Make your own estimate.
b. Suppose that you can either borrow or lend at a Thai Eurocurrency interest rate of 10% per year. Based on a $1 million initial amount, how much profit can you generate through covered interest arbitrage?
|
What happens to financial intermediaries as securitization
: What is the relationship between securitization and the role of financial intermediaries in the economy? What happens to financial intermediaries as securitization progresses?
|
|
How are global poverty and human development related
: Why is the majority of the world's population growing richer while the poorest one-fifth remains poor? How are global poverty and human development related? What steps could be taken to reduce global pverty?
|
|
Flows through the layers of the osi model
: Explain how information flows through the layers of the OSI model. Use the postal service as the example. Make sure you clearly indicate which layer you are referring to.
|
|
Current place of employment
: Consider your home, school, or current place of employment. What would you do to increase your organization's physical security? Try to think of the most cost-effective measures that would have the biggest impact.
|
|
What is uks inflation rate if the equilibrium relations hold
: What is the UK's inflation rate if the equilibrium relationships hold? What is the UK's nominal required return on risk-free government securities?
|
|
No dividends were declared on either the preferred
: At December 31, 2014 Pine Company had 200,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2014 or 2015. On February 10, 2..
|
|
Retail and shopping-walmart-amazon
: In your initial post, select either A, B, or C and test drive the user interfaces for each of the listed sites. Sample test actions have been provided as a guide, but are not inclusive or required. Using the guidelines presented in Chapter 8, spec..
|
|
Find the full load generated voltage
: A 100 kw, 240 V shunt generator has a field resistance of 55 Ohm and armature resistance of 0.067 Ohm. - Find the full load generated voltage.
|
|
Computing basic earnings share-diluted earnings per share
: Nolte Co. has 4,500,000 shares of common stock outstanding on December 31, 2014. An additional 200,000 shares are issued on April 1, 2015, and 480,000 more on September 1. On October 1, Nolte issued $6,000,000 of 9% convertible bonds. Each $1,000 bon..
|