Question

Question 2

Currently, an ounce of gold costs USD 1715, and CHF 1673. One year ago, it cost USD 1681, and CHF 1648. Assume the Law of One Price holds for this question.

a.What is the current spot rate between USD and CHF?

b.What is the USD inflation rate?

c.What is the CHF inflation rate?

d.What would you expect the USD to CHF spot rate to be in 1 year?

Answer #1

a). Current spot rate = gold price in USD/gold price in CHF = 1,715/1,673 = $1.0251/CHF

b). USD inflation rate = (current gold price in USD/last year's gold price in USD) -1

= (1,715/1,681)-1 = 2.02%

c). CHF inflation rate = (current gold price in CHF/last year's gold price in CHF) -1

= (1,673/1,648)-1 = 1.52%

d). Assuming the same inflation rates to hold for the coming year, next year's spot rate will be

current spot rate*(1 + US inflation rate)/(1 + CHF inflation rate)

= 1.0251*(1+2.02%)/(1+1.52%) = $1.03021/CHF

The spot price of gold is $1,975 per ounce. Gold storage costs
are $1.80 per ounce per year payable monthly in advance. Assuming
that continuously compounded interest rates are 4% per year, the
futures price of gold for delivery in 2 months is closest to:
Select one:
$1,989.51
$1,988.51
$1,975.51

The spot of gold is currently $1,970 per ounce. The forward
price (long or short) for delivery in one year is $1,980. An
arbitrageur can borrow or invest money at 4% (semi-annual
compounding rate). What should the arbitrageur do? Assume that the
cost of storing gold is zero and that gold can be borrowed for a
cost based on the spot price of 1% semi-annual, payable in cash
when the gold is returned.

Suppose the spot price of gold is $300 per ounce and the
one-year forward price is $350. Assume the riskless interest rate
is 7%. (4 pts.)
What is the implied cost of carrying the gold?
What is the implied storage cost of the gold?

Suppose that the spot price for gold is $300 per ounce. If the
storage costs are 0.02 per year and the riskless rate is 0.07 per
year: (4 pts.)
What is the forward price of gold after one year?
What would happen if the price of gold were greater than what
you calculated in section (a)?

The price of gold is currently $600 per ounce. The forward price
for delivery in one year is $800. An arbitrageur can borrow money
at 10% per annum. What should the arbitrageur do? Assume that the
cost of storing gold is zero and that gold provides no income. Draw
the cash flow of this portfolio.

Question 19 Revision booklet:
Assume that the spot price of gold is $1,500 per ounce, the
risk-free interest rate is 2%, and storage and insurance costs are
zero.
a) What should be the forward price of gold for delivery in 1
year?
b) If the futures price is $1550, develop a strategy that can
bring risk-free arbitrage profits.
c) Calculate the profit that you can make by following that
arbitrage strategy.

Consider a forward contract on gold. Each contract covers 100
ounces of gold and matures one year from now. Suppose it costs $2
per ounce per year to store gold with the payment being made at the
end of the year. Assume that the spot price of gold is $1300 per
ounce, the continuously compounded risk-free interest rate is 4%
per annum for all maturities.
a) In the absence of arbitrage, find the current forward price.
Show your calculations.
b)...

Consider a forward contract on gold. Each contract covers 100
ounces of gold and matures one year from now. Suppose it costs $2
per ounce per year to store gold with the payment being made at the
end of the year. Assume that the spot price of gold is $1300 per
ounce, the continuously compounded risk-free interest rate is 4%
per annum for all maturities.
a) In the absence of arbitrage, find the current forward price.
Show your calculations.
b)...

1.Assume a US-based multinational borrows CHF 1,500,000 for 1
year. The borrowing interest rate is i = 5% (EAR). The current spot
rate S0(CHF/USD) is 1.5. If the CHF appreciates against the USD
during the year, and the future spot rate one year from now is
estimated at S1(CHF/USD) = 1.44, what is the dollar (effective)
cost of debt during the year?
2. What if the CHF 1,500,000 loan is to be repaid in 2 years,
with interest paid annually...

Suppose the current price of gold is $250 per ounce and that the
future spot price one year from now is projected to be $350. Assume
a riskless rate of 8%.
If storage costs are 3%, what rate of return do you earn on your
gold if you sell it after one year?
How could you take your $250 and instead invest in a synthetic
form of gold (from an investment perspective)? (What actions would
you need to take, including...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 25 seconds ago

asked 2 minutes ago

asked 3 minutes ago

asked 3 minutes ago

asked 9 minutes ago

asked 14 minutes ago

asked 17 minutes ago

asked 17 minutes ago

asked 22 minutes ago

asked 22 minutes ago

asked 26 minutes ago

asked 27 minutes ago