ZuoTi.Pro
Question

A spot exchange rate between Korean Won (KRW) and the United States Dollars (USD) is 0.420...

A spot exchange rate between Korean Won (KRW) and the United States Dollars (USD) is 0.420 USD per KRW. If the risk-free interest rate in the US is 5%per annum with continuous compounding while the risk free rate in Korea is 2%per annum with continuous compounding, what should be the futures exchange rate for a 7-month contract?

*Use at least 6decimals for accuracy

0.4373 USD/KRW

0.4214 USD/KRW

0.4274 USD/KRW

0.4333 USD/KRW
business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

Current Spot Rate= 0.42 KW / $, US Interest Rate = 5 % and Korean Interest Rate = 2 %, Compounding Frequency: Continuous, Tenure = 7 months

Expected Future Exchange Rate = 0.42 x [e^{0.05 x (7/12)} / e^{0.02 x (7/12)}] = 0.42741 KW / $

Hence, the correct option is (c)

0 0
Add a comment
Know the answer?
Add Answer to:
A spot exchange rate between Korean Won (KRW) and the United States Dollars (USD) is 0.420...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • A spot exchange rate between Korean Won (KRW) and the United States Dollars (USD) is 0.420...

    A spot exchange rate between Korean Won (KRW) and the United States Dollars (USD) is 0.420 USD per KRW. If the risk-free interest rate in the US is 5% per annum with continuous compounding while the risk free rate in Korea is 2% per annum with continuous compounding, what should be the futures exchange rate for a 7-month contract? *Use at least 6 decimals for accuracy 0.4333 USD/KRW 0.4214 USD/KRW 0.4373 USD/KRW 0.4274 USD/KRW

  • Suppose the spot and six-month forward rates on the South Korean won are W1,304.88 and W1,315.02,...

    Suppose the spot and six-month forward rates on the South Korean won are W1,304.88 and W1,315.02, respectively. The annual risk-free rate in the United States is 5 percent, and the annual risk-free rate in South Korea is 8 percent. What must the six-month forward rate be to prevent arbitrage? (Do not include the South Korean won sign (*). Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Forward ratew

  • It's not 1298.6242 Suppose the spot and six-month forward rates on the South Korean won are...

    It's not 1298.6242 Suppose the spot and six-month forward rates on the South Korean won are SKW 1,304.99 and SKW 1,314.80, respectively. The annual risk-free rate in the United States is 4 percent, and the annual risk-free rate in South Korea is 5 percent. What must the six-month forward rate be to prevent arbitrage? (Do not include the South Korean won sign (SKW). Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Forward rate...

  • Multinational Financial Management Olga is the CFO of Cool Company, headquartered in Silicon Valley. All of the shareholders live in the United States. Recently, Cool Company EDE received the followi...

    Multinational Financial Management Olga is the CFO of Cool Company, headquartered in Silicon Valley. All of the shareholders live in the United States. Recently, Cool Company EDE received the following loan in millions of Korean Won: W1,200 M This was to finance a new factory in South Korea. At the time the loan was received, the exchange rate between the USD was 1 USD for 1200 South Korean Won Due to the stronger US economy, the USD appreciated in value...

  • Last week, the spot rate for Australian Dollars was 0.7306 USD/ 1 AUD. The 180-day (6...

    Last week, the spot rate for Australian Dollars was 0.7306 USD/ 1 AUD. The 180-day (6 month) forward rate quoted in the market was for 0.7340 USD/1 AUD and the risk-free rate on 180-day securities was 2.90 percent APR for United States LIBOR and 1.96 percent APR for Australian LIBOR. (LIBOR rates are widely used as a reference rate for financial instruments.) Assume that the US is the home country. Are the quotes for AUD above relative to the USD...

  • If a Big Mac is selling in the United States for $3.65, what is the implied exchange rate between each of the currencie...

    If a Big Mac is selling in the United States for $3.65, what is the implied exchange rate between each of the currencies in the table? (Enter your responses rounded to two decimal places.) Country Brazil Poland South Korea Czech Republic Big Mac Price 7.60 reais 7.20 zlotys 3,250 won 67.10 korunas Implied Exchange Rate 2.08 reais per dollar 1.97 zlotys per dollar 890.41 won per dollar 18.38 korunas per dollar Actual Exchange Rate 1.58 reais per dollar 2.03 zlotys...

  • The following questions focus on the exchange rate between the Malaysian ringgit and the South Korean...

    The following questions focus on the exchange rate between the Malaysian ringgit and the South Korean won. Assume the exchange rate is flexible. The exchange rate is defined as the number of ringgit you must pay for one won Suppose strong economic growth in Malaysia causes Malaysian incomes to increase, while incomes in South Korea remain the same Shift the appropriate curve or curves on the following graph to illustrate how this affects the market for South Korean won if...

  • Suppose that the current spot exchange rate is 0.80/$ and the three-month forward exchange rate i...

    Suppose that the current spot exchange rate is 0.80/$ and the three-month forward exchange rate is 0.7813/$. The three-month interest rate is 5.60 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or 800,000. assuming that you want to realize profit in terms of U.S. dollars. The size of your arbitrage profit is S rounded) Suppose that the current spot exchange rate is 0.80/$ and the three-month...

  • The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a...

    The South Korean multinational manufacturing firm, Nam Sung Industries, is debating whether to invest in a 2-year project in the United States. The project's expected dollar cash flows consist of an initial investment of $1 million with cash inflows of $700,000 in Year 1 and $600,000 in Year 2. The risk-adjusted cost of capital for this project is 13%. The current exchange rate is 1,058 won per U.S. dollar. Risk-free interest rates in the United States and S. Korea are:...

  • On June 1, the 4-month interest rates in Switzerland and the United States were, respectively, 2%...

    On June 1, the 4-month interest rates in Switzerland and the United States were, respectively, 2% and 5% per annum with discrete compounding. The spot price of the Swiss franc was $0.8000/CHF. You took a short position of a CHF forward, CHF 100,000, delivery on October 1. One month later on July 1, three-month interest rates in Switzerland and the United States were, respectively, 2.5% and 4.5% per annum with discrete compounding. The spot exchange rate on the Swiss franc...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT