Question

the information below is used for each of the parts of this auestion. There are 5 parts and each is

worth 2 points

Interest ate APR

is 2%

ie 4%

Exchange Rate

-

of

So($/€) $1.60 €1.00

F36o($/€) |$1.58 = €1.00

Please note that your answers are worth zero points if they do not include currency symbols

($, e)

If you borrowed €1,000,000 for one year, how much money would you owe at maturity?

you borrowed $1,000,000 for one year, how much money would you owe at maturity?

you had borrowed $1,000,000 and traded for euro at the spot rate, how many € do you receive ?

if you had €1,000,000 and traded it for USD at the spot rate, how many USD will you get ?

find the one year forward exchange rate in $ per € that satisfies IRP from the Perspective of a customer that borrowred $1M traded for € at the sport and invested it at €= 4% ?

Answer 1

a) MONEY OWE AT MATURITY:

given that,

you borrowed=1,000,000

Money owed at maturity =

€1,000,000 * 1.04 =

=> €1,040,000

(b)MONEY OWE AT MATURITY:

given that,

you borrowed=1,000,000

Money owed at maturity =

$1,000,000 * 1.02 =

=> $1,020,000

(c)

MONEY OWE AT MATURITY:

given that,

you borrowed=1,000,000

€ received

= $1,000,000 / 1.6 =

=> $625,000

(d)

MONEY OWE AT MATURITY:

given that,

you borrowed=1,000,000

$ received =

€1,000,000 * 1.6 =

=> $1,600,000