Suppose that the interest rate is 7 percent on euro-denominated assets of a one year maturity and 5 percent or dollar-denominated assets of a one-year maturity, and the current spot exchange rate for the euro in terms of dollars is $1.50/€. If the dollar is expected to appreciate at a 4 percent rate, what is the rate of return that a French investor can expect to earn on a dollar-denominated assets? Ⓒ3% 1% O 5% 11%
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- Suppose the interest rate is 7% on euro-denominated assets of a one year maturity and 5 percent on a dollar-denominated assets of a one-year maturity, and the current spot exchange rate for the euros in terms of the dollars is $1.50/€ . If the dollar is expected to appreciate at 4 percent rate, what is the rate of return that a French investor can expect to earn on a dollar-denominated assets? 3% 1% 5% 11%If the U.S. income level rises at a much higher rate than does the Eurozone income level. Other things being equal, how should this affect the: (a) U.S. demand for Euro, (b) supply of Euro for sale, and (c) equilibrium value of Euro?In France, one kilogram of macadamia nuts costs 10.5Euro and 10 Dollars in Canadian in Canada. According to the law of one price, the expected exchange rate between the Euro and the Canadian would be_____ 1.5Euro/$ 0.12Dollar/Euro 1.67 Dollar/Euro 0.67 Euro/Dollar
- If the exchange rate at time t is Et = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. When the asset expires at t+1, you get paid € (x.xx round to two decimal places). If dollar appreciates by 2 % against euro, that is, Et+1 = €_______/$(x.xx round to two decimal places), then you can buy back $ (x.xx round UP to two decimal places). Question 10 options: Blank # 1 Blank # 2 Blank # 3If the exchange rate at time t is Et = €1/$. You invest $1 in an euro asset at t, which has an interest of 8%. When the asset expires at t+1, you get paid €_ _(x.xx round to two decimal places). If dollar appreciates by 2 % against euro, that is, Et+1 = € /$(x.xx round to two decimal places), then you can buy back $ (x.xx round UP to two decimal places). Blank # 1 Blank # 2 Blank # 3Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to be paid in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. a. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw receive after it exchanged yen for U.S. dollars? b. What is the difference (in dollars) between what DeGraw could have received had they asked for payment immediately (before the devaluation of the yen) instead of six months later?
- In the bad scenario, the euro can appreciate against the dollar by -15%. The probability of that is 50%. In the good scenario, it will grow 5%. The interest rate is 10% in the EU. a) Find the dollar return of the euro deposit in the bad scenario. That is, if you invest one today dollar in Europe, how many future dollars will you get a year from now? Answer: 0.935 b) In the good scenario, an investment of one euro in Europe returns 1.155 future dollars. Find the expected return on a European deposit. Answer: 1.045 c) Profit is a convex function of the return. The profit of the bad case is -0.067, of the good case 0.077, and of the expected return 0.044. Graph the profit function that would map all the three returns into profits. Answer: (d) Find the expected profit. Draw a graph of the profit function and show how the expected profit is found. Answer:1.005 or .005 e) The certainty equivalent of your answer to (d) is 1.005. Find the forward premium. Show calculation. Answer:…Assume Saudi Arabia to be home and US to be the foreign economy. Suppose that the real exchange rate q (riyal per dollar) between Saudi Arabia and US is 1.2. Inflation rate in the US is 6% and inflation rate in Saudi Arabia is 4%. Given a 15% speed of convergence in the real exchange rate, what would be the expected rate of change in the nominal exchange rate (riyal per dollar)?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…
- Suppose that the annual rate of returns on dollar deposits equals 2% and the rate of returnon euro deposits is 1%. Furthermore, assume that expected exchange rate in a year is$1.1=1 euro and the current exchange rate is $1.08=1 euro. Should you invest in dollardeposits or euro deposits?19. In balance-of-payments accounting, the sale of a foreign production facility by a SA firm is a __________item in the SA balance of payments; the deposit of funds in a foreign bank account by a SA citizen__________ item in the SA balance of payments. A Debit; also is a debitB Debit; is a creditC Credit; is a debitD Credit; also is a creditAssume that the 3-year annualized interest rate in the United States is 9 percent and the 3-year annualized interest rate in Mexico is 6 percent. Assume interest rate parity holds for a 3-year horizon. The spot rate of the Mexican peso is $0.1206. If the forward rate is used to forecast exchange rates, what will be the forecast for the peso's spot rate in 3 years? What percentage appreciation or depreciation does this forecast imply over the 3-year period? USA is the home country.