Spot Rate Assignment | Homework For You

Please answer the next 5 questions based on the following information. Please use the exact, not the approximate formula to answer all questions. Current spot rate of SF S0.6543; Current 1-year forward rate for SF S0.6808; 1-year interest rate in the U.S. 3.5%; 1-year interest rate in the Switzerland 7.5%Homework For You

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25. If the spot rate of SF one year latter is S0.6925, then uncovered rate of return from the US point of view would be: 4.04%

а. b. 9.54% c. 1185% d. 13.78%

26. If you borrowed in $5,000,000 and invested in SF, and the spot rate of SF one year latter turned out to be s0.6925, then your profit/loss from the uncovered transaction at the end of the year would be:

a. $200,000 b. $375,000 c. $417,694 d. $513,809

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27. If the spot rate of SF a year latter is S0.6400 then uncovered rate of return from the Swiss viewpoint is:

a. 9.90% b. 5.81% c. 5.15% d. 1.24%

28. If you knew that the spot rate of SF one year latter would be s0.6400, then you should borrow in invest in and

a. USD; SF b. SF; USD

29. Based on IFE, calculate the expected spot price of SF one year from now should be:

a. $0.6299 b. $0.6531 c. $0.6555 d. $0.6796

30. Given a home country and a foreign country, purchasing power parity suggests that:

a. the inflation rates of both countries will be the same

b. the nominal interest rates of both countries will be the same

c. both a and b

d. none of the above is not feasible.

31. If interest rate parity exists, then, _

a. forward realignment arbitrage

b. triangular arbitrage

c. covered interest arbitrage

d. locational arbitrage. Get Finance homework help today

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