FRL3000: M6 BB Quiz
You are analyzing a project with an initial cost of £50,000. The project is expected to return £12,000 the first year, £36,000 the second year, and £40,000 the third and final year. There is no salvage value. Assume the current spot rate is £.6346. The nominal return relevant to the project is 12 percent in the U.S. The nominal risk-free rate in the U.S. is 3.4 percent while it is 4.1 percent in the U.K. Assume that uncovered interest rate parity exists. What is the net present value of this project in U.S. dollars?
$26,509
The exchange rates in New York for $1 are Can$1.1001 or £.7307. In Toronto, Can$1 will buy £.6731. How much profit can you earn on $11,000 using triangle arbitrage? $147.19 $154.93 $139.01 $183.99 $135.87
1 $ = can$ 1.1001 1 $ = 0.7307 pounds 1 Can $ = 0.6731 pounds Step 1: convert 1 $ into Can $ $11,000 * 1.1001= Can $12,101.1 Step 2: Convert Can $ into pounds Can $12101.1 * 0.6731 = 8145.25041 pounds Step 3: Convert pounds into dollars 8145.25041 pounds / 0.7307 = $11,147.18819 Arbitrage gain = $11,147.18819 - $11,000 = $147.19
A large U.S. company has £500,000 in excess cash from its foreign operations. The company would like to exchange these funds for U.S. dollars. In one of the following markets can this exchange be arranged?
Foreign Exhange
The one-year risk-free rate in the U.S. is 4.18 percent and the one-year risk-free rate in Mexico is 6.42 percent. The one-year forward rate between the Mexican peso and the U.S. dollar is MXN12.35/$. What is the spot exchange rate? Assume interest rate parity holds. MXN12.353/$ MXN14.933/$ MXN13.963/$ MXN12.619/$ MXN12.093/$
MXN12.619/$ 12.35 x (1.0642/1.0418) = 12.619
A set of golf clubs costs $900 in the United States. The current exchange rate is $1.3559/£. Assuming absolute purchasing power parity holds, what is the price of the clubs in Scotland? £711.18 £690.32 £1,220.31 £1,159.29 £663.77
Price of the club in Scotland =Price in dollars*(1/exchange rate) Price of the club in Scotland = 900*1/1.3559 Price of the club in Scotland = 663.77 £663.77
International bonds and domestic bonds issued by the same domestic issuer are usually:
subject to different regulations
Assume interest rate parity holds. The one-year risk-free rate in the U.S. is 5.14 percent and the one-year risk-free rate in Japan is 5.54 percent. The spot rate between the Japanese yen and the U.S. dollar is ¥117.27/$. What is the one-year forward exchange rate?
¥117.72/$ spot rate
Currently, you can purchase either 113 Canadian dollars or 10,700 Japanese yen per $100. What is the yen/Canadian dollar cross-rate?
¥94.6903/Can$
Your German friend has decided to come visit you in the U.S. You estimate the cost of her trip will be $3,225. What is the cost of her trip in euros if the U.S. dollar equivalent of the euro is 1.1379?
€3,669.73 multiply both numbers
