You have 2000 the current interest rates on dollar and

Reference no: EM13374450

You have $2,000. The current interest rates on dollar and pound denominated deposits for 180 -day maturity are i$ = 0.02 (2%) and i£ = 0.03 (3%), respectively. The current spot exchange rate is e = $2/£1.

a. What are your three basic choices of strategy over the next 180 days?

b. If you (and everyone else) were certain that the exchange rate between dollars and pounds would not change over the next 180 days, what would you do? What would you have at the end of 180 days?

c. Assume that you do not mind bearing foreign exchange risk. You expect the spot rate in 180 days to be $1.90/ £1. What strategy would you follow, and why? After 180 days, the actual spot rate turns out to be $1.80/£1. Are you pleased with your decision? Why or why not?

d. Now assume you are risk averse. The 180-day forward rate is $2.02/£1. What strategy would you follow?

Reference no: EM13374450

Questions Cloud

You have been hired by a new firm selling electronic dog : you have been hired by a new firm selling electronic dog feeders. your client has asked you to gather some data on the

A friend of yours is considering two cell phone service : a friend of yours is considering two cell phone service providers. provider a charges 120 per month for the service

Nbspwith a conclusion answering the following : nbspwith a conclusion answering the following questionsmiddot how are these theories similar to one another?nbspmiddot

Two partners who own progressive business solutions which : two partners who own progressive business solutions which currently operates out of an office in a small town near

You have 2000 the current interest rates on dollar and : you have 2000. the current interest rates on dollar and pound denominated deposits for 180 -day maturity are i 0.02 2

What is the characteristic quality of wildean wit : what is the characteristic quality of wildean wit? demonstrate and explain using evidence and

It is estimated that while world coffee prices hover around : it is estimated that while world coffee prices hover around 50cent per pound production costs are around 80cent per

Construct a production possibilities curve for a : construct a production possibilities curve for a hypothetical country. put public capital goods per year on the

Correct the grammar for this paragraphapple ipad has been : correct the grammar for this paragraph.apple ipad has been all the more popular due to its featuring on almost all

User Account

All Pages