Suppose the spot $/Yen exchange rate is 0.008, the 1-year continuously compounded dollar- denominated rate is...

Suppose the spot $/Yen exchange rate is 0.008, the 1-year continuously compounded dollar- denominated rate is 5% and the 1-year continuously compounded yen-denominated rate is 1%. Suppose the 1-year forward exchange rate is 0.0084. Explain precisely the transactions you could use (being careful about currency of denomination) to make money with zero initial investment and no risk. What is such a strategy being referred to in the markets?

Expert Solution

Rahul Sunny answered 2 years ago

Suppose the spot $/Yen exchange rate is 0.008, the 1-year continuously compounded dollardenominated rate is 5%...

Suppose the spot $/Yen exchange rate is 0.008, the 1-year continuously compounded dollardenominated rate is 5% and the 1-year continuously compounded yen-denominated rate is 1%. Suppose the 1-year forward exchange rate is 0.0084. Explain precisely the transactions you could use (being careful about currency of denomination) to make money with zero initial investment and no risk. What is such a strategy being referred to in the markets?

Suppose the exchange rate is $0.61/A$, the Australian dollar-denominated continuously compounded interest rate is 2%, the...

Suppose the exchange rate is $0.61/A$, the Australian dollar-denominated continuously compounded interest rate is 2%, the U.S. dollar-denominated continuously compounded interest rate is 6%, and the exchange rate volatility is 19%. What is the Black-Scholes value of a 3-month $0.60-strike European call on the Australian dollar? $.0315 = Answer Please show all the work THanks

The spot rate of Japanese Yen is 105 Yen per dollar. After one year spot rate...

The spot rate of Japanese Yen is 105 Yen per dollar. After one year spot rate will be is 115 Yen per dollar. If you deposit 1000000 yen in one year saving account with 5% interest rate what will be the dollar rate of return on deposit. Is there a interest parity between Yen and dollar deposit?

The current spot exchange rate between the US Dollar and the Yen is 113 (i.e., $1...

The current spot exchange rate between the US Dollar and the Yen is 113 (i.e., $1 buys 113 Yen). What is the “fair price” for a 12month forward contract (dollars for yen) if the US borrowing cost is 5% per annum and the investment return on a Yen denominated Certificate of Deposit is 1.0%? Given the above information, would you purchase a forward contract offered at 105 Yen to the Dollar from your dealer or create a “synthetic forward contract” on...

1.The current U.S. dollar-yen spot rate is 102¥/$. If the 90-day forward exchange rate is 101¥/$...

1.The current U.S. dollar-yen spot rate is 102¥/$. If the 90-day forward exchange rate is 101¥/$ what is the forward exchange premium or discount for ¥$. 2.Assume the current U.S. dollar-British spot rate is 0.71£/$. If the current nominal one-year interest rate in the U.S. is 2.7% and the comparable rate in Britain is 3.9%, what is the approximate forward exchange rate for 180 days?

As at 1st January, 2017, the spot exchange rate between the U.S. dollar and Japanese Yen...

As at 1st January, 2017, the spot exchange rate between the U.S. dollar and Japanese Yen was trading at $1.00 equivalent to ¥100. The local bank offered the Company to exchange $1.00 for ¥102 on 31st December, 2017. The Interest rates on one year government bonds were 6% in U.S. and 10% in Japan. The company can borrow and lend at the risk-free rate on government bonds. As an Investment Advisor you have been approached for advice by the CEO...

The Euro -Yen dollar spot rate is £$0.89/¥$. When the45-day forward exchange rate is £$0.90/¥$...

The Euro -Yen dollar spot rate is £$0.89/¥$. When the 45-day forward exchange rate is £$0.90/¥$ then the Euro forward dollar is selling at discount or premium of _________%

Question 4: Suppose the current exchange rate for the Japanese Yen against the dollar is $1...

Question 4: Suppose the current exchange rate for the Japanese Yen against the dollar is $1 = 120 yen. Answer the following questions using the long run model of the exchange rate developed in class. a. If you expect Japanese monetary growth to be a total of 25% larger than the US monetary growth rate over the next ten years, what is your best guess as to the exchange rate ten years from now? Be as precise as possible....

Suppose the 6-month risk free spot rate in HKD is 1% continuously compounded, and the 6-month...

Suppose the 6-month risk free spot rate in HKD is 1% continuously compounded, and the 6-month risk free rate in NZD is 3% continuously compounded. The current exchange rate is 5 HKD/NZD. Suppose our usual assumptions hold, i.e., no constraints or other frictions. What is the forward exchange rate with 6 months to maturity such that there is no arbitrage? Suppose again that our usual assumptions hold, i.e., no constraints or other frictions. Suppose you can enter a forward contract...

Suppose that the current spot exchange rate is $1.25/€ and the 1-year forward exchange rate is...

Suppose that the current spot exchange rate is $1.25/€ and the 1-year forward exchange rate is $1.20/€. The 1-year interest rate is 2.00 percent per annum in the United States and 5.00 percent per annum in France. Assume that you can borrow up to $1,000,000 or €800,000. Calculate your arbitrage profit in €.

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