Assume an offshore FX derivative market is unavailable for Dominican Republic Peso (DOP) and a corporation approaches a commercial bank offshore to sell its DOP revenues and buy USD. Determine the price of a one-year USD DOP FX nondeliverable forward (NDF) under the following assumptions: • The withholding tax on investing in investments in DOP fixed income instruments is 10 percent. • The current one-year Dominican Republic treasury bills yield at 9.5 percent. • The one-year USD dollar rate of 0.40 percent. • The same convention applies to DOP and USD rates.
Assume an offshore FX derivative market is unavailable for Dominican Republic Peso (DOP) and a corporation approaches a commercial bank offshore to sell its DOP revenues and buy USD. Determine the price of a one-year USD DOP FX nondeliverable forward (NDF) under the following assumptions: • The withholding tax on investing in investments in DOP fixed income instruments is 10 percent. • The current one-year Dominican Republic treasury bills yield at 9.5 percent. • The one-year USD dollar rate of 0.40 percent. • The same convention applies to DOP and USD rates.
ChapterP2: Part 2: Exchange Rate Behavior
Section: Chapter Questions
Problem 1Q
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Assume an offshore FX derivative market is unavailable for Dominican Republic Peso (DOP) and a corporation approaches a commercial bank offshore to sell its DOP revenues and buy USD. Determine the price of a one-year USD DOP FX nondeliverable forward (NDF) under the following assumptions:
• The withholding tax on investing in investments in DOP fixed income instruments is 10 percent.
• The current one-year Dominican Republic treasury bills yield at 9.5 percent.
• The one-year USD dollar rate of 0.40 percent.
• The same convention applies to DOP and USD rates.
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