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What must one-year interest rate be in japan

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1. Suppose that the one-year interest rate is 3 percent in France, the spot exchange rate is €0.0109/Y, and the one-year forward exchange rate is €0.0111/Y What must one-year interest rate be in Japan?

2. Last year, your company sold electronic products to Brazil. You are expecting to receive Real 850,000 in 6 months. The following quotations are provided by a currency dealer:

In $ per $

Real 0.4200 2.3810

1 m. forward 0.4210 2.3753

3 m. forward 0.4350 2.2989

6 m. forward 0.4115 2.4301

-Draw the profit/loss graph for your unhedged position. If the spot rate in 6 months is $0.4000/ Real, what would be your profit/loss for your unhedged position (based on the related forward rate quotation)

-Describe how you can hedge your currency risk. Draw the profit/loss graph for your long or short forward position. If the spot rate in 6 months is $0.4000/Real, what would be your profit/loss for your long or short forward position.

-Draw your graph for your combined position (unhedged plus long or short forward contract). What is your profit/loss for the combined position?

-If you are completely confident that the spot rate in 6 months will be 0.4228, do you need to take a short or long position in Real forward contract?

For question #2, please answer all bullet points.

I will be up all night I will rate immediately. Please make sure to show all work.

Reference no: EM133057348

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