Question 23 DK Investment Co is a US firm that executes a carry trade in which it borrow euros (where interest rates are presently low) and invests in British pounds (where interest rates are presently high). DK Investment uses $100,000 of its own funds and borrow an additional euro 600,000. It will pay 0.5% on its euro borrowed for the next month and will earn 1.0% per month on funds invested in UK (British pounds). Assume the euro spot rate is $1.2/euro and the BP rate is $1.9/BP and after one month the FX rates will be the same. What will be DK Investment Net US$ profit from this carry trade investment? For the calculation of cross FX rate, use two decimal point after rounding up (e.g. 1.1101 is 1.11) O around $4,800 O around $4,600 around $4,200 O around $4,400 D 5 nts

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

The initial investment of SGD 20,000,000 can be financed using a bank loan at an interest rate of 7.75%. The CFO knows a colleague of a Singaporean company that wants to invest in the United States. The USD amount is 10,000,000. The two CFOs are considering a currency swap to gain an arbitrage profit.   The following data is available: Interest SGD Interest USD SGD company 8.50% 5.75% USD company 7.75% 5.50%   Determine whether a beneficial currency swap between the two companies is possible..

smart banking corp. can borrow $5 million at 6 percent annualized. it can use the proceeds to invest in Canadian dollars at 9 percent annualized over a six - day period. the canadian dollar is worth $.95 and is expected to be worth $.94 is six days. based on this information, shiuld smart banking corp borrow U.S. dollars and invest in canadian dollars? whar would be the gain or loss in U.S. dollars? dont chatgpt answer

Newstar Co. expects to pay 500,000 euro in one year. Assume the annual interest rate of borrowing or lending euro is 1% and the annual interest rate of borrowing or lending U.S. dollar is 2%. The spot rate of euro is $1.12 per euro.  How much guaranteed amount of U.S. dollar does the company expect to pay after hedging the euro payable transaction in the international money market? (pick the closest answer)     A. 565,545 USD.   B. 554,510 USD.   C. 562,786 USD.   D. 576,912 USD.

The Australian Dollar (A$) 6-month borrowing rate is 7.50% per annum and the Australian Dollar (A$) 6-month investment rate is 4.50% per annum. The Euro (€) 6-month borrowing rate is 5.40% per annum and the Euro (€) 6 - month investment rate is 2.18% per annum. An Australian company is expecting to use money market hedging both for its account payables and account receivables. The current spot rate is A$1.72/€. WACC = 7% Determine the cost for money market hedging for a cash flow of €6.9 million due to a supplier in 6 months, and the proceed for money market hedging for a cash flow of €9.9 million due from a customer in 6 months.

GBA Company  wishes to raise $5,000,000  with debt financing.  The funds will  be repaid  with interest in 1 year. The treasurer of GBA Company is considering three sources: i. Borrow USD from Citibank  at 1.50% ii. Borrow EUR from Deutsche Bank at 3.00% iii.  Borrow GBP from Barclays at 4.00% If the company borrows in euros or British pounds, it will not cover the foreign exchange risk; that is, it will change foreign currency for dollars at today’s spot rate and buy foreign currency back 1 year later at the spot rate prevailing  then. The GBA Company has no operations  in Europe. A representative of GBA contacts a local academic to provide projections  of the spot rates 1 year in the future. The academic comes up with the following  table:   Currency   Spot Rate Projected Rate 1 Year in the Future USD/GBP 1.5 1.55 USD/EUR 0.95 0.85 What are the projected USD/GBP rate and USD/EUR rate for which the expected interest costs would be the same for the three…

Zongo Industrial Banks, a U.S. bank, has 1-year U.S. $300 million loan that earns an average rate of return of 6%. Forrest Gump Bank also has one year single payment Euro loans of €110 million earning 8%. Forrest Gump Bank's funding source is $400 million in US$ one year NCDS, on which they are paying 4%. Initially the exchange rate is €1.10 per $1 U.S. The one year forward rate is €1.14 per $1 U.S. What is the bank's dollar % spread if they hedge fully using Euro forwards? Note: For this questions, you MUST show detailed calculation as we did in the class. That is, show the formula and substitution.

GBA Company  wishes to raise $5,000,000  with debt financing.  The funds will  be repaid  with interest in 1 year. The treasurer of GBA Company is considering three sources: i. Borrow USD from Citibank  at 1.50% ii. Borrow EUR from Deutsche Bank at 3.00% iii.  Borrow GBP from Barclays at 4.00% If the company borrows in euros or British pounds, it will not cover the foreign exchange risk; that is, it will change foreign currency for dollars at today’s spot rate and buy foreign currency back 1 year later at the spot rate prevailing  then. The GBA Company has no operations  in Europe. A representative of GBA contacts a local academic to provide projections  of the spot rates 1 year in the future. The academic comes up with the following  table:   Currency   Spot Rate Projected Rate 1 Year in the Future USD/GBP 1.5 1.55 USD/EUR 0.95 0.85   What is the expected interest rate cost for the loans in EUR and GBP?

An American rm owes SFr 6, 000, 000.00 payable in one year. The current spot it$1.3750/SFr. A Swiss bank is paying 1.50% on deposits or will lend at 6.50% AU.S. bank is paying 4.50% or will lend at 8.00%. The rm would like to hedge this exposurewith money market hedging. How much do they need to borrow today