interest rate that eliminates the covered interest rate a rate, remains at 1.00%, and the current spot the exchar year forward rate remains at Yen102.00/$? A. 6.5556% B. 4.4155% C. 1.2000% D. 11.6618%
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- 10) Assume the overall US market price for retail chocolate is $7.00 per pound, and in order to attract "Chocoholic Tourists" from Europe, the Hershey company decides to lower its price to $6.00 per pound. Based on the Purchasing Power Parity theory of exchange rates, what will eventually happen the effective price of chocolate for European buyers, assuming the Euro-USD exchange rate starts at 1€ Per $1.00? Using the chart below, determine the exchange rate at which Hershey's effective chocolate prices will match those of the rest of the chocolate market? # of Lbs Chocolate Exchange Exchange Chocolate 200 Effective budget in Rate Euros Rate budget in Price Euro Euro/$ $/Euro $'s Euros will buy 200.00 € 1.00 1.00 $200 33.33 6.00 € 200.00 € 1.05 0.95 $190 31.75 6.30 € 200.00 € 1.10 0.91 $182 30.30 6.60 € 200.00 € 1.15 0.87 $174 28.99 6.90 € 200.00 € 1.20 0.83 $167 27.78 7.20 € 200.00 € 1.25 0.80 $160 26.67 7.50 € 200.00 € 1.30 0.77 $154 25.64 7.80 € 200.00 € 1.35 0.74 $148 24.69 8.10 €Suppose a British investor is expected to receive payment of 150,000 dollars ($) in twelve months from a U.S. bank. The annual interest rate in dollar deposit is 5% and the annual interest rate in pound deposit is 10%. If the present exchange rate is 0.50 pound per dollar deposit and interest parity holds, then. (a) How many pounds does the British investor expect to receive at the maturity date of his U.S. investment? (Show the computation process). (b) How many pounds were initially invested? Fully explain all your answers (calculation).In France, one kilogram of macadamia nuts costs 10.5Euro and 10 Dollars in Canadian in Canada. According to the law of one price, the expected exchange rate between the Euro and the Canadian would be_____ 1.5Euro/$ 0.12Dollar/Euro 1.67 Dollar/Euro 0.67 Euro/Dollar
- If an American traveling abroad can obtain 115 euros for $100 U.S, the current euro per $ exchange rate is: a. 0.870 euros/$ b. 1.15 euros/$ c. 115euros/$ d. 1euro/1.15$Describe how the three transactions below would affect the exchange rates of the Mauritian rupee, assuming that Mauritius has a free floating exchange rate regime:(i) Oxenham Ltd imports a year's supply of French champagne. Payment in euros is due immediately. (ii) Omnicane(a local company) has successfully privately placed a bond issue of USD100m to foreign institutional investors. The first coupon is due in six months’ time and the rate of interest is 2 % per annum.The proceeds have been used to repay a commercial bank for a USD bank loan which came to maturity.(iii) Air Mauritius (MK) buys a Boeing 747 for USD 160 million. As part of thedeal, Boeing arranges a loan to MK for the purchase amount from the U.S.Export-Import Bank. The loan is to be paid back over the next ten years with a two-year grace period.1. You have an accounts payable to a German exporter for 100 Porsche Cayenne SUVs. The seller offers a 2 percent discount for payment within 10 days and full payment due in 30 days (2/10 net 30). Today the exchange rate is $1.40 per Euro. You notice that the 30 day forward rate for the $/Euro is $1.38…..what should you do? You owe 70,000 Euros for each of the cars (before any discounts). [show your work!] 2. You are changing planes in London for a flight to Paris where you will connect with your flight to Capetown. You are picking up reading material for the flight and are looking at the prices listed on the Economist magazine which conveniently lists prices in several different global currencies. You note that the price in Pounds is 2.40 pounds and the price in Euros is 2 Euros. The exchange rate for the dollar (your credit card was issued in the USA) is $1.59/pound and $1.3837/euro. Should you buy reading materials now or wait until you’re in Paris? 3. You notice that the…
- A US firm exporting to Mexico has set a price of MXN 2000 for a product with variable cost of $60. At an exchange rate of MXN 20/USD 1, per unit contribution is $40. What is the impact on per unit contribution if the exchange rate changes to MXN 25/USD 1, all else being equal? decrease 25% increase 50% increase 25% no change decrease 50%Suppose that the US interest rate is 5.4% per annum and the interest rate in Japan is 2.8% per annum. The value of the US dollar in the spot market is ¥74 what must the forward exchange rate be (yen per US dollar) for There to be no risk less profit? (Enter the numerical value only rounding to one decimal place) The forward rate you calculate above will be different and different from the spot rate explain why it cannot be the same(b) Suppose the interest parity condition holds. Also assume that the one-year interest rate in the United States is 6% and that the one-year interest rate in Canada is 6%. What does this imply about the current versus future expected exchange rate (for the U.S. and Canadian dollars)?
- At the exchange rates of EUR/USD = 1.13757, EUR/GBP = .84029 and GBP/USD= 1.35235 would a triangular arbitrage opportunity be feasible between the U.S., Greece, and Great Britian? If so, how should it be conducted to make a profit?A Palestinian resident can earn 3 percent interest on a one-year bank deposit of $50,000 at home. Alternatively, he can convert the $50,000 into euros and earn 4 percent on a one-year bank deposit in France. If the exchange rate is initially 0.90 euros per dollar and then changes to 0.89 euros per dollar in one-year, which deposit would have given him a higher return?Consider a Dutch investor with 1,000 euros to place in a bank deposit in either the Netherlands or Great Britain. The (one-year) interest rate on bank deposits is 1% in Britain and 5% in the Netherlands. The (one-year) forward euro–pound exchange rate is 1.65 euros per pound, and the spot rate is 1.5 euros per pound. Answer the following questions, using the exact equations for uncovered interest parity (UIP) and covered interest parity (CIP) as necessary. What is the euro-denominated return on Dutch deposits for this investor? What is the (riskless) euro-denominated return on British deposits for this investor using forward cover? Is there an arbitrage opportunity here? Explain why or why not. Is this an equilibrium in the forward exchange rate market? If the spot rate is 1.5 euros per pound, and interest rates are as stated previously, what is the equilibrium forward rate, according to CIP? Suppose the forward rate takes the value given by your answer to (d). Compute the forward…
