With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the foreign currency is %.
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With a 10 percent interest rate on dollar deposits, and an expected appreciation of 7 percent over the coming year, the expected return on dollar deposits in terms of the foreign currency is %.
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- Question (1) suppose the british pound U-S dollar exchange rate is currently So=£.50.Further suppose that the inflation rate in Britain is predicted to be 10percent over the year ,coming year and(for the moment)the inflation rate in the United States is predicted to be zero.What do you think the exchange rate will be in a yearUse the following information about today's U.S. Treasury STRIP yield curve to answer questions 19-21. One year spot rate Two year spot rate Three year spot rate 1.95 % p.a. 2.30% p.a. 2.45% p.a. 19. What is the market consensus expectation of one year spot rates for delivery one year from now? a. 1.95% p.a. b. 2.65% p.a. c. 2.70% p.a. d. 2.30% p.a. e. 2.75% p.a. 20. What is the market consensus expectation of one year spot rates for delivery two years from now? a. 1.95% p.a. b. 2.65% p.a. c. 2.70% p.a. d. 2.30% p.a. e. 2.75% p.a. 21. How is the one year spot rate expected to change over the next year? a. An increase of 8 basis points. b. An increase of 50 basis points. c. A decrease of 5 basis points. d. An increase of 70 basis points. e. An increase of 35 basis points.If inflation is anticipated to be 6 percent during the next year, while the real rate of interest for one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan? a. 11% b. 6%c. 5%d. 12%
- If $43,000 is invested now, which of the following value is closest to the equivalent future dollars 6 years from now to earn a real interest rate of 3% per year when the inflation rate is 6% per year? Select one: а. 51,344 b. 72,833 c. 66,709 d. 79,519 е. 60,996Problem 7: A. In terms of present value, which of the following options is worth more? Is there an interest rate at which the values switch rank? If so, what is the rate at which the switch occurs? Option 1: $100 every year with the first payment in 1.5 years. Option 2: $50 every 6 months with the first payment in 1 year. Option 3: $50 every 6 months with the first payment in 1.5 years. B. In terms of present value, which of the following options is worth more? Is there an interest rate at which the values switch rank? If so, what is the rate at which the switch occurs? Option 4: $100 every year with the first payment in 1 year. Option 5: $95 every year with the first payment in .5 years.Suppose we wish to borrow $10 million for 3 months, and that the quoted Eurodollar futures price is 94.80. If the interest rate on the loan is based on the 3-month LIBOR rate, what will we pay to repay the loan (that is, the total amount we need to repay including principal and interest based on LIBOR)? Question 16 options: $10, 160, 000.00 $10, 130,000.00 $10, 115,000.00 $10, 640,000.00 $10,520,000.00
- Finance The practice of investing in a currency that offers the higher return on a covered basis is known as covered interest arbitrage. Currently, the six month Euro Libor rate is -0.52% per annum, and the six month TR libor rate is 18.06% per annum. If the spot rate is 8.5013TRY per Euro and the forward rates are as stated below, Forward Points EURTRY 1M FWD 1003 EURTRY 3M FWD 3411 EURTRY 6M FWD 7096 EURTRY 1Y FWD 14507 a) What is 6M Forward rate for euro? b) Do you have a covered interest arbitrage opportunity? c) If yes, how? d) How much is the arbitrage amount you can enjoy if you can borrow upto 1 million euros or its equivalent Turkish Lira?Question Il: Suppose that the exchange rate is $0.92/e. Let rs = 4%, and re = 3%, u = 1.2, d = 0.9, T = 0.75, number of binomial periods = 3, and K = $1.00 Use Binomial Option pricing to answer the following two questions. (a) What is the price of a 9-month European put? (b) What is the price of a 9-month American put?Question Il: Suppose that the exchange rate is $0.92/e. Let rs= 4%, and re= 3%, u = 1.2, d = 0.9, T = 0.75, number of binomial periods = 3, and K = $1.00 Use Binomial Option pricing to answer the following two questions. (a) What is the price of a 9-month European call? (b) What is the price of a 9-month American call?
- Q.4 Use present value analysis to determine which of the following three payment sequences would you prefer if you are to receive payments (in thousands of Rands) at the end of each of the next five years when the nominal interest rate is r = 0.5 (provide necessary details): A. 12, 14, 16, 18, 20; B. 16, 16, 15, 15, 15; C. 20, 16, 14, 12, 10. Q.5 Assume that after one time period, the value of a stock (whose present value is R80) would be either R120 or R60. Suppose that, for any y, at a cost of Cy, one can purchase at a time-0 the option to buy y shares of the stock at time-1 at a price of R90 per share. For what values of C, no-arbitrage will be possible? (Provide necessary details).Question I: 4%, and re = 3%, u = 1.2, d 0.9, T = 0.75, Suppose that the exchange rate is $0.92/€. Let r's number of binomial periods = 3, and K = $0.85. Use Binomial Option pricing to answer the following two questions. (a) What is the price of a 9-month European call? (b) What is the price of a 9-month American call? Question II: Use the same inputs as in the previous (first) question, except that K = $1.00. 1 (a) What is the price of a 9-month European put? (b) What is the price of a 9-month American put?Financial Risk Management QUESTION 2: Interest Rate Swap• Suppose a borrower, Syarikat ABC, has a 5-year, RM 10 million loan from Maybank. Maybank charges an interest based on 6-month KLIBOR + 2% payable semi-annually. The firm’s funding costs will increase as 6-month KLIBOR rises. How can the firm hedge?