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- McDougan Associates (USA). McDougan Associates, a U.S.-based investment partnership, borrows €80,000,000 at a time when the exchange rate is $1.3460 = €1.00. The entire principal is to be repaid in three years, and interest is 6.250% per annum, paid annually in euros. The euro is expected to depreciate vis-à-vis the dollar at 3% per annum. What is the effective cost of this loan for McDougan?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.Assume that a bank has assets located in Germany worth €390 million earning an average of 6 percent. It also holds €190 in liabilities and pays an average of 4 percent per year. The current spot rate is €1.50 for $1. If the exchange rate at the end of the year is €2.00 for $1: a. What happened to the dollar? Did it appreciate or depreciate against the euro (€)?b. What is the effect of the exchange rate change on the net interest margin (interest received minus interest paid) in dollars from its foreign assets and liabilities?c. What is the effect of the exchange rate change on the value of the assets and liabilities in dollars?
- Assume that a bank has assets located in Germany worth €150 million earning an average of 8 percent. It also holds €100 in liabilities and pays an average of 6 percent per year. The current spot rate is €1.50 for $1. If the exchange rate at the end of the year is €2.00 for $1, ( LG 19-1) a. What happened to the dollar? Did it appreciate or depreciate against the euro (€)? b. What is the effect of the exchange rate change on the net interest margin (interest received minus interest paid) in dollars from its foreign assets and liabilities? c. What is the effect of the exchange rate change on the value of the assets and liabilities in dollars?BK Inc. has $100,000 that can be used for arbitrage in the forex market. The interest rate is US is 4% and in Europe is 5%. The current exchange rate USD to EUR is 0.87. The company expects that after a year, the exchange rate may not be favourable and executes a forward contract at EUR to USD 1.23. Calculate the net profit or loss of this covered interest arbitrage if the investment is made in Europe. Answer Choices: a. The net profit is $8,360.50 The net loss is $4,000.00 b. c. The net profit is $5,360.50 d. The net loss is $1,000.00Suppose one-year German Treasury bill pays 4.34% and one-year Canadian Treasury bill pays 3%. The current spot exchange rate is 1 Euro (EUR) = 1.3581 Canadian dollar (CAD) and the one-year forward exchange rate is 1 EUR = 1.3238 CAD. How much %3D arbitrage profit can an investor earn on an investment value of CAD 3 million?
- Goodyear, a U.S. firm, sells tires to Airbus UK, and will receive payment of £1,000,000 in one year. Goodyear's bank quotes the information below: o The spot exchange rate is o The 1-year interest rate on dollars is ius = 2.00% e$/£ $1.50/£ %3D o The 1-year interest rate on pounds is iUK = 5.50% o The 1-year forward rate on pounds is fs/£ = $1.45/£ %3D In addition, Goodyear contacts private forecasters in the market and concludes: o The 1-year-ahead expected exchange rate on the Pound is eex £ = $1.40/£Suppose one-year German Treasury bill pays 4.13% and one-year Canadian Treasury bill pays 2.95%. The current spot exchange rate is 1 Euro (EUR)= 1.3694 Canadian dollar (CAD) and the one-year forward exchange rate is 1 EUR = 1.3335 CAD. How much arbitrage profit can an investor earn on an investment value of CAD 4 million Answer: CAD (DO NOT ROUND YOUR CALCULATIONS UNTIL YOU REACH THE FINAL ANSWER. ENTER YOUR RESPONSE ROUNDED TO TWO DECIMAL PLACES AND NO SEPARATOR FOR THOUSANDS.)(C) US Bank is considering investing in a three years' project in Europe country. The project would require an initial investment of $750,000 and it is expected to generate €80,000, €100,000 and €150,000 in year one until three, respectively. The business risk will be identical to the firm's existing line of business in the euro-zone, the required rate of return in the euro-zone is 18 percent. The exchange rate is $1.20/€ where the dollar also shows appreciating by one percent for every year. Determine the Net Present Value (NPV) in dollar currency for this project and justify.
- A U.S. investor can borrow 1,000,000 or 500,000 GBP. The spot rate is $2.00/GBP, the one year forward rate is $2.02/GBP. The U.S. one year interest rate is 14% and the one year British interest rate is 12%. Determine if there is a covered interest rate arbitrage opportunity, and if so, clearly show each step involved in the arbitrage opportunity. Show the total dollar profit. If you determined that there is no arbitrage opportunity, describe why you made that decision.A3) Finance Currently, the GBP/USD rate is 1.5050 and the three-month forward exchange rate is 1.5269. The three-month interest rate is 6.2% per annum in the U.S. and 4.1% per annum in the U.K. Assume that you can borrow £1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the local currency and invest abroad? (USD, no cents)Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate of U.S. dollars for euros is $1.104/€1. a. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? b. What will be the return on the one-year CD if the dollar appreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.004/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) c. What will be the return on the one-year CD if the dollar depreciates relative to the euro such that the spot rate of U.S. dollars for euros at the end of the year is $1.204/€1? (Do not round intermediate calculations. Round your answer to 3 decimal places. (e.g., 32.161)) a. Exposure b. Return if dollar appreciates C. Return if dollar depreciates Appreciation 10.440 % 32.440 %