Assume an offshore FX derivative market is unavailable for Dominican Republic Peso (DOP) and a corporation approaches a commercial bank offshore to sell its DOP revenues and buy USD. Determine the price of a one-year USD DOP FX nondeliverable forward (NDF) under the following assumptions: • The withholding tax on investing in investments in DOP fixed income instruments is 10 percent. • The current one-year Dominican Republic treasury bills yield at 9.5 percent. • The one-year USD dollar rate of 0.40 percent. • The same convention applies to DOP and USD rates.

Assume an offshore FX derivative market is unavailable for Dominican Republic Peso (DOP) and a corporation approaches a commercial bank offshore to sell its DOP revenues and buy USD. Determine the price of a one-year USD DOP FX nondeliverable forward (NDF) under the following assumptions: • The withholding tax on investing in investments in DOP fixed income instruments is 10 percent. • The current one-year Dominican Republic treasury bills yield at 9.5 percent. • The one-year USD dollar rate of 0.40 percent. • The same convention applies to DOP and USD rates.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

ChapterP2: Part 2: Exchange Rate Behavior

Section: Chapter Questions

Problem 1Q

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