Question
Assume the one-year interest rate is 12% on British pounds and 9% on U.S. dollars. If...
Assume the one-year interest rate is 12% on British pounds and 9% on U.S. dollars.
- If the current exchange rate of the pound is $1.63, what is the expected future spot in one year?
- Suppose a change in expectations causes the expected future spot rate to decline to $1.52. What should happen to the U.S. interest rate?
Homework Answers
Answer #1
A)
Forward Rate = 
Spot Rate : 1 Pound = $1.63
= 
= 1.5863
1 Pound = $1.5863
B)
Forward Rate =
Spot Rate : 1 Pound = $1.63
Forward Rate : 1 Pound = $1.52
1.52 = 
1.52 * 1.12 / 1.63 = 1 + USA Interest Rate
1.04441717791 - 1 = USA Interest Rate
USA Interest Rate = 4.44%
US Interest Rates will fall to 4.44%
Not the answer you're looking for?
Similar Questions
Covered Interest Arbitrage. Assume the following information: • British pound spot rate = $1.65. • British...
Covered Interest Arbitrage. Assume the following information: •
British pound spot rate = $1.65. • British pound one-year forward
rate = $1.65 • British one-year interest rate = 12 %. • U.S.
one-year interest rate = 10 %. Explain how U.S. investors could use
covered interest arbitrage to lock in a higher yield than 9
percent. What would be their yield? Explain how the spot and
forward rates of the pound would change as covered interest
arbitrage occurs.
Sun Bank USA has purchased a 16 million one-year Australian dollar loan that pays 12 percent...
Sun Bank USA has purchased a 16 million one-year Australian
dollar loan that pays 12 percent interest annually. The spot rate
of U.S. dollars for Australian dollars (AUD/USD) is $0.757/A$1. It
has funded this loan by accepting a British pound (BP)–denominated
deposit for the equivalent amount and maturity at an annual rate of
10 percent. The current spot rate of U.S. dollars for British
pounds (GBP/USD) is $1.320/£1. (LG 9-5)
What is the net interest income earned in dollars on...
The current Dollar-Pound exchange rate is 1.60 dollars per British Pound. The U.S. and British risk-free...
The current Dollar-Pound exchange rate is 1.60 dollars per
British Pound. The U.S. and British risk-free interest rates
(annualized, continuously compounded) are 5% and 7.5%,
respectively. Answer the following questions.
A. What is the no arbitrage forward price of the British Pound
for a 6-month forward contract?
B. Suppose the actual forward price is 1.65 dollars per British
Pound. Illustrate the arbitrage opportunity.
Crown Co. is expecting to receive 100,000 British pounds in one year. Crown expects the spot...
Crown Co. is expecting to receive 100,000 British pounds in one
year. Crown expects the spot rate of British pound to be $1.49 in a
year, so it decides to avoid exchange rate risk by hedging its
receivables. The spot rate of the pound is quoted at $1.51. The
strike price of put and call options are $1.54 and $1.53
respectively. The premium on both options is $.03. The one-year
forward rate exhibits a 2.65% premium. Assume there are no...
(2 pts) Percentage Appreciation. Assume the spot rate of the British pound is $1.242. The expected...
(2 pts) Percentage Appreciation. Assume the spot rate
of the British pound is $1.242. The expected spot rate one year
from now is assumed to be $1.278. What percentage appreciation does
this reflect?
(3 pts) Interest Rate Effects on Exchange Rates. Assume
U.S. interest rates fall relative to British interest rates. Other
things being equal, how should this affect the (a) U.S. demand for
British pounds, (b) supply of pounds for sale, and (c) equilibrium
value of the pound?...
The spot exchange rate is currently $1.85 US per 1 British pound. One year interest rate...
The spot exchange rate is currently $1.85 US per 1 British
pound. One year interest rate is 4% in the US and 3% in the UK. A
US bank is long a futures contract to buy 1,000,000 pounds for $1.8
million in one year. What is the current present value of the
futures contract to the bank in US$?
19-1.) If British pounds sell for $1.30 (U.S.) per pound, what should dollars sell for in...
19-1.) If British pounds sell for $1.30 (U.S.) per pound, what
should dollars sell for in pounds per dollar?
19-2.) A currency trader observes that in the spot exchange
market, 1 U.S. dollar can be exchanged for 3.58 Israeli shekels or
for 109 Japanese yen. What is the cross-exchange rate between the
yen and the shekel; that is, how many yen woukd you receive fkr
every shekel exchanged?
19-3.) Six-month T-bills have a nominal rate of 2%, while
default-free Japanses...
Suppose the direct foreign exchange rates in U.S. dollars are 1 British pound = $ 1.20...
Suppose the direct foreign exchange rates in U.S. dollars
are
1 British pound = $ 1.20
1 Canadian dollar = $ 0.68
Required: a. What are the indirect exchange rates for the
British pound and the Canadian dollar? (Round your answers to 4
decimal places.)
1
USD
British
pounds
1 USD
Canadian dollars
b.
How many pounds must a British company pay to purchase goods
costing $10,000 from a U.S. company? (Do not round
intermediate calculations.)
British
pounds
c.How many...
Question 7 Unsaved If the nominal exchange rate was one U.S. dollar for 0.6 British pounds...
Question 7 Unsaved If the nominal exchange rate was one U.S.
dollar for 0.6 British pounds sterling and then changed to one
dollar for each 0.5 British pound, we could accurately state that
the dollar appreciated in relation to the pound and the pound
depreciated in relation to the dollar. Question 7 options:
True or False
Crown Co. is expecting to receive 100,000 British pounds in one year. Crown expects the spot...
Crown Co. is expecting to receive 100,000 British pounds in one
year. Crown expects the spot rate of British pound to be $1.49 in a
year, so it decides to avoid exchange rate risk by hedging its
receivables. The spot rate of the pound is quoted at $1.51. The
strike price of put and call options are $1.54 and $1.53
respectively. The premium on both options is $.03. The one-year
forward rate exhibits a 2.65% premium. Assume there are no...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 4 minutes ago
asked 5 minutes ago
asked 26 minutes ago
asked 47 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 2 hours ago
asked 2 hours ago