1. US0.4912/BR 2. BR2.0358/US
2. Did the Australian Dollar appreciate or depreciate against the US dollar from Tuesday to Wednesday?
A: Appreciate
3. What is the cross rate for the Brazilian Real in terms of Mexican Peso?
0.0751/0.4912=BR0.15289/MP
4. A bank provides the following quotes: Real0.15021/Mexican Peso and Real0.004143/Chilean Peso. Which of these cross rates provides the opportunity to conduct a profitable arbitrage?
A: The Real0.152890/Mexican Peso better than the bank quotes Real0.15021/Mexican Peso. So the Real/Mexican Peso is a profitable arbitrage.
5. Is the Australian Dollar trading at a forward premium or discount with respect to the 6 month forward rate?
A: premium
6. Compute the forward premium (or discount) on the 6 month forward rate on the Australian Dollar.
[(1.00879556-1.0251)/1.0251]*[360/120]=-0.04771566
7. Judging by the 3 Australian Dollar forward rates, are interest rates in Australia higher or lower than interest rates in the US?
A: Australia Dollar interest rate higher
8. Assume that interest rates in the US and Australia are each 4%. Is there an arbitrage opportunity and if so, in which currency should you borrow and in which currency should you invest/lend? (use the 6 month forward contract for this problem).
A:(1.00879556/1.0251)*(1+4%)>(1+4%)=>Borrow Australia Dollar, Lend US Dollar
You May Also Find These Documents Helpful
-
d. Assume that inflation in London is 1.250%, the same as in New York. Determine the real rate of interest in London and in New York.…
- 484 Words
- 2 Pages
Powerful Essays -
The Mexican peso has weakened considerably relative to the dollar, and you are trying to decide whether this is a good time to invest in Mexico. Suppose the current exchange rate of the Mexican peso relative to the U.S. dollar is MXN9.5/USD. Your investment advisor at Goldman Sachs argues that the peso will lose 15% of its value relative to the dollar over the next year. What is Goldman Sachs’s forecast of the exchange rate in 1 year?…
- 963 Words
- 4 Pages
Powerful Essays -
11) The optimal currency area involves a trade-off of reducing transaction costs but the inability to use changes in exchange rates to help ailing regions. If the US, Canada, and Mexico had one single currency (the Peso-Dollar) we would tend to see all of the following…
- 523 Words
- 3 Pages
Satisfactory Essays -
1) First, describe in your own words the significance and differences in foreign currency exchange rates.…
- 576 Words
- 2 Pages
Good Essays -
1. Take a look at Mexico’s balance of payments over the past few years. Use the schedule I have attached to the case – it is in the same format as we used to examine the U.S. balance of payments. What do the trade and current account balances suggest about the likelihood of a potential devaluation of the peso? Why?…
- 978 Words
- 4 Pages
Good Essays -
2. For the following problems assume that there are no bid/ask spreads and that EURUSD =1.20 and CADUSD =.60.…
- 912 Words
- 4 Pages
Good Essays -
4. Determine the present value now of an investment of $3,000 made one year from now and an additional $3,000 made two years from now if the annual discount rate is 4 percent.…
- 253 Words
- 2 Pages
Satisfactory Essays -
3. A marine biologist is planning to move from Sydney, Australia, to San Francisco. She has $5,000 Australian dollars (AUD) to make the move. In the summer of 2006, the exchange rate of USD/AUD (U.S. dollars to Australian dollars) is 0.765, and the USD is rising against the AUD. If the rising dollar trend continues, and all other economic elements remain equal, will her AUD be worth more USD now or later? Explain.…
- 641 Words
- 3 Pages
Satisfactory Essays -
Tokyo is 216.6743. The yen rate in New York is given in the preceding table. Are arbitrage profits possible? Set up an arbitrage scheme with your capital. What is the gain (loss) in dollars?…
- 305 Words
- 2 Pages
Satisfactory Essays -
Online Quiz Questions for Week 3 Topic: Term Structure Question: Assume that coupon interest is paid annually and all bonds have a face value of $100. Given the yields to maturity of the i) 1‐year 13% coupon bond, ii) 2‐year 11.5% coupon bond and iii) 3‐year 9% coupon bond are 10%, 9.5% and 9% respectively. Compute f(1,2), the interest rate of a 1‐year bond in 2 years’ time. Correct Answer: 7.88% Question: Suppose that all investors expect that interest rates on a 1‐year bond for the next 4 years will be as follows: Today interest rate for a 1‐year bond = 5% Forward rate for a 1‐year bond in 1 year = 7% Forward rate for a 1‐year bond in 2 years = 9% Forward rate for a 1‐year bond in 3 years = 10% What is the price of a 3‐year zero coupon bond with a face value of $100? Correct Answer: Question: Calculate the expected holding period return for an investor who purchases a 5.5% two‐year bond and plans to sell it after one year. The purchase price is $97.350, the expected market rate for a one year bond in one year is 7.20% and the bond pays coupon interest annually. The bond has a $100 face value. Correct Answer: Question: An investor with a one‐year investment horizon has chosen to invest in a four‐year bond. Find the expected market rate of a three‐year bond in one year if the forward rate, f(3,1), is 6.4% with a liquidity premium of 50 basis points? Correct Answer: 5.9% 6.74% $81.658…
- 7922 Words
- 32 Pages
Satisfactory Essays -
The Size of financial flows into Australia The size of financial flows into Australia from investors who wish to invest in Australia and need to convert their currency into AUD will affect demand for the dollar. The level of capital inflow will be affected by the level of Australian interest rates relative to overseas interest rates as well as the level of confidence in the Australian economy. If Australia has relatively higher interest rates and stronger confidence, then this will encourage capital inflow and increase demand for the AUD. Using this theory, the Australian dollar at the present looks to be in a relatively strong position. Interest rates are beginning to rise (official interest rate has recently been risen 0.25 points to 4.5% and is expected to raise to 5.25% by September this year, with economic growth expected to be around 3.75% in 2002/03.)…
- 1054 Words
- 4 Pages
Better Essays -
Determine whether the foreign exchange quotations are appropriate. If they are not appropriate, determine the profit you could generate by withdrawing $100,000 from Blades’ checking account and engaging in arbitrage before the rates are adjusted.…
- 798 Words
- 4 Pages
Satisfactory Essays -
4.) The exchange rate between U.S dollar and Mexican peso is 10pesos to $1.00 dollar. However todays current exchange is 13.25 pesos to $1.00.…
- 465 Words
- 2 Pages
Satisfactory Essays -
If the spot rate in three months was expected to be ¥110.00/$, what would be the amount in US dollars, covered and uncovered?…
- 275 Words
- 2 Pages
Satisfactory Essays -
b. What is the real risk-free rate of interest (r*) and the nominal risk-free rate (rRF)? How are these two rates measured?…
- 1130 Words
- 5 Pages
Good Essays