Nikul A bank purchases a six-month $3 million Eurodollar deposit at an interest rate of 7.3 percentper year. It invests the funds in a six-month Swedish krona bond paying 7.5 percent per year.The current spot rate of U.S. dollars for Swedish krona is $0.1800/SKr.a. The six-month forward rate on the Swedish krona is being quoted at $0.1810/SKr. What isthe net spread earned for six months on this investment if the bank covers its foreignexchange exposure using the forward market?b. At what forward rate will the spread be only 1 percent per year?(For all requirements, do not round intermediate calculations. Round your answers to 4decimal places. (e.g., 32.1616))a.Net spreadb.Forward rate4.3290 %per SKr

a. Net Spread Earned for Six MonthsHere's how to calculate the net spread earned for six months on…

Answered: A bank purchases a six-month $3 million…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 8P

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Below is the information regarding U.S. and Canadian annualized interest rates: Currency Lending Rate Borrowing Rate U.S Dollar ($) 6.73% 7.20% Euro (€) 6.80% 7.28% Note: Spot rate of Euro is $1.13 An international bank can borrow either 20 million U.S. dollars or 20 million euro. The bank expects the spot rate of the euro is $1.10 in 90 days, which is equal to ______ profit. A. $583,800 B. $588,200 C. $584,245 D. $579,845
Suppose that the U.S. interest rate on one year Treasury notes was 4.5%. We will use this as the annual interest rate in the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.1%. The spot rate is 1.0162 EUR/USD.. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage? If so, what would be the total profit if we borrowed $20 million for 3 months? A. YES- $27,395.21 would be the profit B. YES- $29,385.41 would be the profit C. YES- $31,695.53 would be the profit D. YES- $33,875.42 would be the profit E. NO- there is no opportunity for a profit
An investor in England purchased a 91-day $1,000 par T-bill for $987.65. At that time, the exchange rate was $1.75 per pound. At maturity, the exchange rate was $1.83 per pound. What was the investor’s holding period return in pounds?
d. A bank borrows $1 million for 6-months at an annual interest rate of 6.5 percent. It invests the funds in a six-month Swedish krona AA-rated bond paying 7.5 percent per year. The current spot rate of US $ to Swedish Krona is $0.11/1 Kr. The six-month forward rate on the US $ to Swedish krona is quoted at $0.1110/1Kr. What is the net return earned on this investment, after 6 months, if the bank covers its foreign exchange exposure using the forward market?
The forward rate of the Swiss franc is $0.50. The spot rate of the Swiss franc is $0.48. The following interest rates exist: U.S. Switzerland 360-day borrowing rate 7% 5% 360-day deposit rate 6% 4% You need to purchase SF200,000 in 360 days. If you use a money market hedge, the amount of dollars you need in 360 days is ______. A. $101,904 B. $101,923 C. $96,914 D. $98,770
The nominal annual interest rate on 6-month U.S. Treasuries is 1.5% (i.e., the semiannualreturn is 0.75%). The spot rate of the British pound is $1.2881 (£0.7763 per U.S. dollar) and the6-month forward rate of the British pound is $1.2960 (£0.7716 per U.S. dollar). If interest rateparity holds, what is the nominal annual interest rate on default-free 6-month British bonds?
A U.S. bank converted $1 million to Swiss francs to make a Swiss franc loan to a valued corporate customer when the exchange rate was 1.2 francs per dollar. The borrower agreed to repay the principal plus 6 percent interest in one year. The borrower repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate was 1.25 francs per dollar. What was the bank's dollar rate of return? 1.53% 1.76% 1.85% 2.01% On July 15, 2022, you convert 480,000 U.S. dollars to Japanese yen in the spot foreign exchange market at the spot rate of ¥104.91/$ and purchase a six-month forward contract to convert yen into dollars at the forward rate of $0.0095320/¥. How much will you receive in U.S. dollars at the end of six months? $497,668 $502,388 $458,773 $480,001
Sun Bank USA has purchased a 24 million one-year Australian dollar loan that pays 15 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.625/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 13 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.588/A$1 and $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whole number. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $180,000 (disregarding any change in principal values)?…
Sun Bank USA has purchased a 8 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.625/A$1. It has funded this loan by accepting a British pound (BP)-denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.60/£1. a. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.588/A$1 and $1.848/£1, respectively? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your final answer to the nearest whole number. (e.g., 32)) b. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $200,000 (disregarding any change in principal values)?…
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)–denominated deposit for the equivalent amount and maturity at an annual rate of 10 percent. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. What is the net interest income earned in dollars on this one-year transaction if the spot rate of U.S. dollars for Australian dollars and U.S. dollars for BPs at the end of the year are $0.715/A$1 and $1.520/£1, respectively?
Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5 million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Assumptions Arbitrage funds available Spot exchange rate (kr/$) 3-month forward rate (kr/S) US dollar 3-month interest rate Danish kroner 3-month interest rate Value $5,000,000 6.1720 6.1980 4.000% a) 5.000% a) kr Equivalent kr 30,860,000 Heidi Høi Jensen generates a covered interest arbitrage profit because, although U.S. dollar interest rates are lower, the U.S. dollar is selling forward at a premium against the Danish krone. What is the amount of that profit? kr21,102 kr34,750 kr24,250 kr54,150
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It has funded this loan by accepting a British pound (BP)–denominated deposit for the equivalent amount and maturity at an annual rate of 10%. The current spot rate of U.S. dollars for British pounds (GBP/USD) is $1.320/£1. What should the spot rate of U.S. dollars for BPs be at the end of the year in order for the bank to earn a net interest income of $200,000?

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