When the currency denominating an international bond depreciates against the domestic currency of the investor, the...

When the currency denominating an international bond depreciates against the domestic currency of the investor, the value of that bond to the investor ______(rises OR Falls) . The risk of this occurrence is known as ________ ( liquidity, interest rate, exchange rate, OR credit) risk.

2- assume a direct quotation of $0.80 per euro.

Suppose you have also been given a direct quotation of $0.1 per peso.

The cross exchange rate, indicating the euro value in terms of pesos, is _______euros per peso.

Solutions

Expert Solution

1. Falls

(Since the currency depreciates, the value of the bond which is in that foreign currency will also decline)

2. Exchange rate risk

(The fall in returns on the bond is due to exchange rate changes and not due change in circumstance/ interest rate or performance of the company)

3. 0.125 Euros per peso

1 Euro = 0.8 USD

So 1 USD= 1/0.8 Euro

1 USD= 1.25 Euro

Given that 1 Peso= 0.1 USD

1 Peso= 0.1* 1.25 Euro

1 Peso= 0.125 Euro

jeff jeffy answered 2 years ago

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