Question
In: Finance
I'm primarily interested in the last question put in Bold: If the spot rate for British...
I'm primarily interested in the last question put in Bold:
If the spot rate for British pounds is 0.6 pounds equals 1 US $, and annual interest rate on fixed rate one-year deposits of pounds is 3.25% and for US$ is 2.25%, what is the eighteen-month forward rate for one dollar in terms of pounds?
Assuming the same interest rates, what is the 36-month forward rate for one pound in dollars? Is this an indirect or a direct rate?
If the forward rate is an accurate predictor of exchange rates, in this case will the pound get stronger or weaker against the dollar? What does this indicate about the market’s inflation expectations in the UK compared to the US?
Assume you plan to buy 10 million pounds of UK consols and hold them for three years, using the information above what would be your hedged annual cash flow in dollars. What is a way you could hedge your exposure if you thought the $ would weaken?
Solutions
jeff jeffy answered 1 year agoRelated Solutions
I'm a social psychologist, so I'm interested primarily in the situational and contextual factors that drive...
I'm a social psychologist, so I'm interested primarily
in the situational and contextual factors that drive human
behavior. When you're seeking to predict or explain a
person's actions, looking at the social norms, and
the person's context, is usually a pretty safe bet. Situational
constraints typically predict behavior far better than personality,
intelligence, or
other individual-level traits. So when I see a student failing
to assignments, missing deadlines, or not delivering results in
other aspects of their life, I'm moved...
Assume the spot rate of the ? is $1.7000. The British interest rate is 10%, and...
Assume the spot rate of the ? is $1.7000. The British interest
rate is 10%, and the U.S. interest rate is 11% over the 360?day (1
year) period. The British inflation rate is 4% and the U.S.
inflation rate is 3.5% over the 360-day (1 year) period. The
180-day forward price is $1.7200/?. The 180-day European call
option on the $ with the exercise price of ?0.5800 is selling at 3%
premium, while the 180-day European put option on the...
Spot and forward exchange rates for the British pound are as follows: Spot exchange rate =...
Spot and forward exchange rates for the British pound are as
follows: Spot exchange rate = 1.4500 USD/GBP, 90-day forward
exchange rate =1.4416 USD/GBP, 180-day forward exchange rate =
1.4400 USD/GBP. Additionally, a 180-day European call option to buy
1 GBP for USD 1.42 costs 3 cents, and a 90-day European put option
to sell 1 GBP for USD 1.49 costs 3 cents. Which of the following is
the correct arbitrage strategy?
Select one:
Buy the 90-day forward contract and...
The spot exchange rate for the British pound is $1.2576. The U.S. interest rate is 0.25...
The spot exchange rate for the British pound is $1.2576. The
U.S. interest rate is 0.25 percent, and the British interest rate
is 0.50 percent. A futures contract on the exchange rate for the
British pound expires in 110 days. (a) Find the appropriate futures
price. [3M] (b) Find the futures price under the assumption of
continuous compounding. [3M] (c) Suppose the actual futures price
is $1.3250. Is the future contract mispriced? If yes, how could an
arbitrageur take advantage...
Covered Interest Arbitrage. Assume the following information: * British pound spot rate = $1.65. * British...
Covered Interest Arbitrage. Assume the
following information:
* British pound spot rate = $1.65.
* British pound one-year forward rate = $1.65
* British one-year interest rate = 12 %.
* U.S. one-year interest rate = 10 %.
Explain how U.S. investors could use covered interest arbitrage
to lock in a higher yield than 9 percent. What would be their
yield? Explain how the spot and forward rates of the pound would
change as covered interest arbitrage occurs.
Currently, the spot rate is $1.28/£. As a trader, you believe that the British pound will...
Currently, the spot rate is $1.28/£. As a trader, you believe
that the British pound will appreciate significantly in the near
future. You decide to speculate by buying a December call option
with a strike price of $1.35/£ and a premium of $0.05/£. Please
answer the following questions:
1. Explain briefly why buying a call option makes sense in this
case.
2. How much is the intrinsic value of the option? And how much
is the time value?
3. Please...
Currently, the spot rate is $1.33/£. As a trader, you believe that the British pound will...
Currently, the spot rate is $1.33/£. As a trader, you believe
that the British pound will depreciate significantly in the near
future. You decide to speculate by buying a December put option
with a strike price of $1.35/£ and a premium of $0.05/£. Please
answer the following questions:
1. Explain briefly why buying a put option makes sense in this
case.
2. How much is the intrinsic value of the option? And how much
is the time value?
3. Please...
Currently, the spot rate is $1.33/£. As a trader, you believe that the British pound will...
Currently,
the spot rate
is $1.33/£.
As a trader,
you believe
that the British
pound will
depreciate
significantly
in the near future. You
decide to
speculate by buying
a Decemberput
option
with a
strike
price of
$1.35/£
and a
premium
of$0.05/£.
Please answer
the following questions:
1.
Explain
briefly
why buying
a put
option makes
sense in this
case.
2. How much is
the intrinsic value of the option? And how much is the time
value?
3.
Please fill
in...
Currently, the spot rate is $1.28/£. As a trader, you believe that the British pound will...
Currently, the spot rate is $1.28/£. As a trader, you believe
that the British pound will appreciate significantly in the near
future. You decide to speculate by buying a December call option
with a strike price of $1.35/£ and a premium of $0.05/£. Please
answer the following questions:
1. Explain briefly why buying a call option makes sense in this
case.
2. How much is the intrinsic value of the option? And how much
is the time value?
3. Please...
If the spot rate for British pounds is 0.6 pounds equals 1 US $, and annual...
If the spot rate for British pounds is 0.6 pounds equals 1 US $,
and annual interest rate on fixed rate one-year deposits of pounds
is 3.25% and for US$ is 2.25%, what is the eighteen-month forward
rate for one dollar in terms of pounds? Assuming the same interest
rates, what is the 36-month forward rate for one pound in dollars?
Is this an indirect or a direct rate? If the forward rate is an
accurate predictor of exchange rates,...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- The three principal rays for converging (concave) mirrors: 1. Any incident ray parallel to the principal...
- Given a connected graph G with n vertices. We say an edge of G is a...
- Let iqsort(A, 1, n) be an algorithm that sorts an array A with n integers. It...
- Write a program to print the number of class assignments you have done so far, the...
- This is in C# on visual Basic Write a base class that has two property members:...
- Greta, an elderly investor, has a degree of risk aversion of A = 3 when applied...
- Should certain categories of drugs be decriminalized? What might the impact be – in the short-...
ADVERTISEMENT