Spot Rate and Forward Rate Spot Rate: It is nothing more than the YTM on bond. It is the rate of interest on bond maturing at any time in the future. It is also known as geometric average of 1 year forward rates in the future. Hence‚ YTM on bonds can be calculated as: When forward rates are given then; oS1 = oF1 oS2 = [(1+of1)(1+1F2)](1/2) -1 oS3 = [(1+of1)(1+1F2)(1+2F3)](1/3) -1 and so on. Forward Rates: It is the interest rate established today ‚ that will be paid on money to
Premium Bond
the value of the British pound changes from $1.50 to $1.25‚ then the pound has _________ and the dollar has _________. a. appreciated; appreciated b. depreciated; appreciated c. appreciated; depreciated d. depreciated; depreciated 2. When the exchange rate changes from 1.0 euros to the dollar to 0.8 euros to the dollar‚ then the euro has _________ and the dollar has _________. a. appreciated; appreciated b. depreciated; appreciated
Premium Futures contract Call option Option
Diff: E . If the inflation rate in the United States is greater than the inflation rate in Sweden‚ other things held constant‚ the Swedish currency will a. Appreciate against the U.S. dollar. b. Depreciate against the U.S. dollar. c. Remain unchanged against the U.S. dollar. d. Appreciate against other major currencies. e. Appreciate against the dollar and other major currencies. EMU Answer: c Diff: E . What is the common currency of the EMU? a. U.S. dollar. b. British pound. c. Euro
Premium United States dollar Currency Foreign exchange market
following rates per annum on a $20 million five-year loan : Fixed rate Floating rate Company A 12.0% LIBOR + 0.1% Company B 13.4% LIBOR + 0.6% Company A requires a floating-rate loan; company B requires a fixed-rate loan. Design a swap that will net a bank‚ acting as intermediary‚ 0.1 % per annum and that will appear equally attractive to both companies. Q.2. Company X wishes to borrow U.S. dollars at a fixed rate of interest. Company Y wishes to borrow Japanese yen at a fixed rate of
Premium United States dollar Foreign exchange market
1. If the spot rate for the Swiss Franc is that 1.15 SF is equal to 1 US $‚ and the annual interest rate on fixed rate one-year deposits of SF is 1.5% and for US$ is 2.5%‚ what is nine-month forward rate for one dollar in terms of SFs? Assuming the same interest rates‚ what is the 18-month forward rate for one SF in US$s? Is this an indirect or a direct rate? If the forward rate is an accurate predictor of exchange rates‚ in this case will the SF get stronger or weaker against the dollar? What does
Premium Switzerland United States dollar Forward contract
exchange rate between the Japanese yen and the U.S. dollar is 120 yen per dollar. If the dollar is expected to depreciate by 10% relative o the yen‚ what is the new expected exchange rate? Rate is 120 yen – 1 dollar If dollar depreciates 10% then the new exchange rate will be 108 yen – 1 dollar Web Exercise 1: a) What is the percentage change in the euro-dollar exchange rate been between the euro’s introduction and now? In December 1999‚ the exchange rate was approximately .85 dollars per
Premium United States dollar Loan
Table of Contents Background 3 Israel’s GDP 4 Financial Crisis 5 Interest Rates 5 Budget Deficit…………………………………………………………………………………………………………………………………………….. 7 Unemployment in Israel 8 Inflation in Israel 9 Balance of payment 10 Conclusion: 11 References 12 Background Israel was under British mandate untill May 14‚ 1948 when it declared its independence. The Israeli economy is highly diversified open-economy that depends on imports of raw materials‚ crude oil‚ gains and military
Premium Inflation
Chapter 5 : Interet rates Page161 Interest rate quotes and adjustments 5-1. Your bank is offering you an account that will pay 20% interest in total for a two-year deposit. Determine the equivalent discount rate for a period length of a. Six months. b. One year. c. One month. a. Since 6 months is [pic] of 2 years‚ using our rule [pic] So the equivalent 6 month rate is 4.66%. b. Since one year is half of 2 years [pic] So the equivalent 1 year rate is 9.54%. c. Since
Premium Compound interest Time value of money Debt
of the page. Problem 1 5 Points Mint Corporation has several transactions with foreign entities. Each transaction is denominated in the local currency unit of the country in which the foreign entity is located. On November 2‚ 2009‚ Mint sold confectionary items to a foreign company at a price of LCU 23‚000 when the direct exchange rate was 1 LCU = $1.08. The account has not been settled as of December 31‚ 2009 (the company’s year-end)‚ when the exchange rate has decreased to 1 LCU = $1
Premium United States dollar Currency Exchange rate
2. History of Japanese Yen. Describe the historical exchange rates between Japanese Yen and U.S. dollar over time. Focus on the big changes and what was the exchange rate in (and years before) July 1993. 3. To Hedge or Not? Do you think Tiffany should actively manage its yen-dollar exchange rate risk? Why or why not? Explain the benefits and costs of hedging. 4. What to Hedge? If Tiffany were to manage its exchange rate risk‚ then identify what exposures should be managed via such a
Premium United States dollar Strike price Put option