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
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The spot exchange rate for the British pound is $1.2576. The
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As a trader,
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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
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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...
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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,...
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