Assume the following information:
1-year deposit rate
offered by U.S. banks
=
12%
1-year...
Assume the following information:
1-year deposit rate
offered by U.S. banks
=
12%
1-year deposit rate
offered on Swiss francs
=
10%
1-year forward rate
of Swiss francs
=
$.62
Spot rate of Swiss
franc
=
$.60
An U.S. investor has $1,000,000 to invest (note: the investor
uses own money, not borrowed funds). What is the yield to the U.S.
investor who conducts covered interest arbitrage? Make sure you
show your works step by step and explain your calculations. Does
covered interest arbitrage work for the U.S. investor?
A Swiss investor have Swiss francs (CHF) 1,000,000 to execute
covered interest arbitrage (i.e., convert CHF into US$, invest in
the U.S., and use forward contracts to hedge foreign exchange rate
risk). What is the yield to the Swiss investor who conducts covered
interest arbitrage? Can the Swiss investor earns a higher return
than investing at home (i.e., Switzerland)? (6 points in
total)
Solutions
Expert Solution
ANSWER IN THE IMAGE((YELLOW HIGHLIGHTED). FEEL FREE TO
ASK ANY DOUBTS. THUMBS UP PLEASE.
Assume the following information:
1-year deposit rate offered on U.S. dollars
= 2.5%
1-year deposit rate offered on Singapore
dollars
= 4.0%
1-year forward rate of Singapore
dollars
= $0.795
Spot rate of Singapore dollar
= $0.80
Given this information, does covered interest arbitrage
worthwhile for a US investor? Assume the investor invests
$1,000,000
Please do not round during intermediate steps and round your
final answer to four decimal places.
please show work
Assume the following information:
1-year deposit rate offered on U.S. dollars
= 2.5%
1-year deposit rate offered on Singapore
dollars
= 4.0%
1-year forward rate of Singapore
dollars
= $0.78
Spot rate of Singapore dollar
= $0.80
Given this information, does covered interest arbitrage
worthwhile for a US investor? Assume the investor invests
$1,000,000
(______)
Please do not round during intermediate steps and round your
final answer to two decimal places.
Assume the following information:
U.S. investors have $1,375,000 to invest
1-year deposit rate offered on U.S. dollars
=
.12
1-year deposit rate offered on Singapore dollars
=
0.105
1-year forward rate of Singapore dollars
=
$0.412
Spot rate of Singapore dollar
=
$0.40
interest rate parity doesn’t exist and covered interest
arbitrage by U.S. investors results in a yield of _______ which is
above what is possible domestically
Assume the following information: U.S. deposit rate for 1 year =
11% U.S. borrowing rate for 1 year = 12% Singapore deposit rate for
1 year = 8% Singapore borrowing rate for 1 year = 10% Singapore
forward rate for 1 year = $0.40 Singapore spot rate = $0.39
3. Using the information above, if a US. Company expects to
receive S$600,000 for exports sold to a Singapore company:
a. What will be the approximate value of these exports in...
Assume the following information: 1-year interest rate on U.S.
dollars = 11.5% 1-year interest rate on Singapore dollars = 9.7%
Spot rate of Singapore dollar = 0.48 USD/SGD 1-year forward premium
on Singapore dollars = 3.64% Given this information, how much
profit can be made with covered interest arbitrage, by borrowing 1
million USD?
Assume the following information:
1-year interest rate on U.S. dollars = 11.4%
1-year interest rate on Singapore dollars = 9.1%
Spot rate of Singapore dollar = 0.4 USD/SGD
1-year forward premium on Singapore dollars = 3.79%
Given this information, how much profit can be made with covered
interest arbitrage, by borrowing 1 million USD?
Assume the following information:
1 - year U.S. interest rate = 3%
1- year German interest rate = 6%
Spot rate of euro = $1.09
What is the central bank likely to do and how will this affect
the value of the euro?
Without using an exchange rate model, what is your prediction
for the one year forward rate given the likely action of Germany’s
central bank, all things being equal?
Using the interest rate parity equation, was your...
4. Ms. Sternin is a U.S. arbitrageur. The one-year interest rate
offered in the U.S. is 1.0%, while the one-year interest rate
offered in Australia is 3.25%. The spot rate is .96 AUD/USD.
Kramerika Bank offers Ms. Sternin a one-year forward contract at
1.05 AUD/USD.
(1) Determine the arbitrage-free one-year forward contract
exchange rate.
(2) Can Ms. Sternin make a risk-free profit? If yes, describe a
covered arbitrage strategy.
(3) Determine Ms. Sternin's profits.
(4) Calculate the forward premium and...
The table below shows term deposit interest rates offered by
five banks. Please answer the following questions:
(a) Limit the entries to the 7 terms (i.e., 1 month - 24 months)
(1 mark).
(b) Use functions to work out the highest interest rate for the
term selected in part (a) (2 marks).
(c) Use functions to work out which bank is offering this rate
(2 marks).
Term Deposit Interest Rates
Bank
1 month
3 months
6 months
9 months
12...
Assume Alcoa has access to the following quotes:
U.S. borrowing rate for 1 year = 9.5%
U.S. deposit rate for 1 year = 8.7%
French borrowing rate for 1 year = 11.3%
French deposit rate for 1 year = 10.2%
euro spot quote = $1.2363?78
euro 1 year forward quote = $1.2329?47
What value can Alcoa lock in for a receivable of euro3 million
due in one year if it executes a money market hedge today?