Question

Assume the following information: U.S. investors have $1,000,000 to invest: 1-year deposit rate offered on U.S....

Assume the following information:

U.S. investors have $1,000,000 to invest:
1-year deposit rate offered on U.S. dollars                        =12%
1-year deposit rate offered on Singapore dollars                =10%
1-year forward rate of Singapore dollars                            =$.412
Spot rate of Singapore dollar                                            =$.400

Then:

interest rate parity exists and covered interest arbitrage by U.S. investors results in the same yield as investing domestically.

interest rate parity doesn't exist and covered interest arbitrage by U.S. investors results in a yield above what is possible domestically.

interest rate parity exists and covered interest arbitrage by U.S. investors results in a yield above what is possible domestically.

interest rate parity doesn't exist and covered interest arbitrage by U.S. investors results in a yield below what is possible domestically.

The yield from the CIA problem above is:

12%

.042%

-1.2%

none of the above

Your company will receive C$600,000 in 90 days. The 90-day forward rate in the Canadian dollar is $.80. If you use a forward hedge, you will:

receive $750,000 today.

receive $750,000 in 90 days.

pay $750,000 in 90 days.

receive $480,000 in 90 days.

receive $480,000 today.

Homework Answers

Answer #1

               

Interest rate parity doesn't exist and covered interest arbitrage by U.S. investor’s results in a yield above what is possible domestically.

The yield from the CIA problem above is

None of the above

Amount required to invest by us

$10,00,000

spot rate of Singapore dollar

$0.40

2500000

Deposit rate offered on Singapore dollars

1.1

2750000

One year forward rate to Singapore dollars

$0.41

$11,33,000.00

Yield [$1,133,000-$1,000,000]/1000,000

13.3%

Your company will receive C$600,000 in 90 days. The 90-day forward rate in the Canadian dollar is $.80. If you use a forward hedge, you will:

receive $480,000 in 90 days.

($600,000*$0.80)

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider the information below: U.S. investors have $1,700,000 to invest: 1-year deposit rate offered on U.S....
Consider the information below: U.S. investors have $1,700,000 to invest: 1-year deposit rate offered on U.S. dollars = 9.0% 1-year deposit rate offered on euros = 13.0% 1-year forward rate of euro = $1.20 Spot rate of euro = $.1.40 Given this information, if you conduct a covered interest arbitrage, how much dollars will you have in one year? $1,819,000 None of the answers provided is correct $2,768,571 $1,646,571 $3,227,280
TCO B assume the following information. 1-year deposit rate offered by U.S. banks= 12% 1year deposit...
TCO B assume the following information. 1-year deposit rate offered by U.S. banks= 12% 1year deposit offered on swiss francs =10% 1year forward rate of Swiss francs=.62 Spot rate of Siss franc=.60 From the perspective of U.S investors with 1,000,000, covered interest arbitrage would yeild a rate of return of ____%
Assume the following information:U.S. investors have $1,000,000 to invest: 1-year deposit rate in the U.S.=2% 1-year...
Assume the following information:U.S. investors have $1,000,000 to invest: 1-year deposit rate in the U.S.=2% 1-year deposit rate in Switzerland =1.5% 1-year forward rate of Swiss francs=$.7430 Spot rate of Swiss franc =$0.75 Given this information, are there arbitrage profits for American or Swiss investors? How much? Assume $1 Million Arbitrage Capital in U.S. dollars (or its equivalent in Swiss Francs).
Assume the following information: You have $1,500,000 to invest. Current spot rate of pound = $1.61....
Assume the following information: You have $1,500,000 to invest. Current spot rate of pound = $1.61. 90-day forward rate of pound = $1.57. 3-month deposit rate in U.S. = 2.39%. 3-month deposit rate in U.K. = 5%. Does the covered interest parity hold? If you use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?
22. Assume the following information: You have $2,000,000 (US dollars) to invest: Current spot rate of...
22. Assume the following information: You have $2,000,000 (US dollars) to invest: Current spot rate of euro = $1.30 1-year forward rate of euro = $1.25 1-year deposit rate in U.S. = 11% 1-year deposit rate in Europe = 14% If you use covered interest arbitrage for a 1-year investment, what will be the amount of U.S. dollars you will have after one year? (Points : 3.5)    -$2,192,307.69.    -$2,371,200.00.    -$3,672,500.00.    -$1,403,076.92. Question 23. 23. Continued from...
Assume the following information: Quoted Price Spot rate of Singapore dollar $.75 90?day forward rate of...
Assume the following information: Quoted Price Spot rate of Singapore dollar $.75 90?day forward rate of Singapore dollar $.74 90?day Singapore interest rate 4.5% 90?day U.S. interest rate 2.5% Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1,000,000.) What market forces would occur to eliminate any further possibilities of covered interest arbitrage?
You have $1,000,000 to invest: Current spot rate of pound: $1.30 90-days forward rate of pound...
You have $1,000,000 to invest: Current spot rate of pound: $1.30 90-days forward rate of pound $1.28 3 month deposit rate in U.S 3% 3 month deposit rate in U.K 4% If you covered interest rate arbitrage for a 90 days investment, what will be the amount of U.S dollar you will have after 90 days?                                      
Assume the following information: Spot rate of £ = $1.60 180-day forward rate of £ =...
Assume the following information: Spot rate of £ = $1.60 180-day forward rate of £ = $1.56 180-day British interest rate = 4% 180-day U.S. interest rate= 3% (a) Based on this information, is covered interest arbitrage by U.S. investors feasible (assuming that U.S. investors use their own funds)? Explain. (b) Does interest rate parity exist? Explain. (Please provide detailed answers)
Question 1(25 marks) (a) Assume the following information: Spot rate of £ = $1.60 180-day forward...
Question 1 (a) Assume the following information: Spot rate of £ = $1.60 180-day forward rate of £ = $1.59 180-day British interest rate = 4% 180-day U.S. interest rate = 3% Based on this information, is covered interest arbitrage by U.S. investors feasible (assuming that U.S. investors use their own funds ($1 million))? Explain. (b) Covered Interest Arbitrage in Both Directions. The one-year interest rate in New Zealand is 6 percent. The one-year U.S. interest rate is 10 percent....
The following is market information: Current spot rate of pound = $1.45 90-day forward rate of...
The following is market information: Current spot rate of pound = $1.45 90-day forward rate of pound = $1.46 3-month deposit rate in U.S. = 1.1% 3-month deposit rate in Great Britain = 1.3% If you have $250,000 and use covered interest arbitrage for a 90-day investment, what will be the amount of U.S. dollars you will have after 90 days?