Interest rates are 7% in the U.S and 3% in Mexico and Interest Rate Parity exists....
Interest rates are 7% in the U.S and 3% in Mexico and Interest Rate Parity exists. What return would a U.S. investor make using covered interest arbitrage?
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Interest rates are 7% in the U.S and 3% in Mexico and Interest
Rate Parity exists....
Today, the one-year U.S. interest rate is 2%, while the one-year interest rate in Mexico is...
Today, the one-year U.S. interest rate is 2%, while the one-year interest rate in Mexico is 8%. The spot rate of the Mexico peso (MXP) is $.06 The one-year forward rate of the MXP exhibits a 10% discount. Determine the yield (percentage return on investment) to an investor from Mexico who engages in covered interest arbitrage.
You, as a U.S. investor, find the current annual interest rate in the U.S. is 3%...
You, as a U.S. investor, find the current annual interest rate in the U.S. is 3% and the annual interest rate in Canada is 5%. The spot exchange rate for Canadian dollar is $0.95 per Canadian dollar, the 90-day Canadian dollar forward exchange rate is $0.928 per Canadian dollar. Based on covered interest rate parity theory, what is the correct 90-day forward rate of the Canadian dollar? Is there any arbitrage opportunity to trade the forward contract on Canadian dollars?
Assume the following information: Spot rate of Mexican peso : $.100 180-day forward rate of Mexican...
Assume the following information: Spot rate of Mexican peso : $.100 180-day forward rate of Mexican peso : $.098 180-day Mexican interest rate : 6% 180-day U.S. interest rate : 5% a) What would be the return to a Mexican investor who has 1,000,000 Mexican pesos from using covered interest arbitrage? (i.e. the Mexican investor will convert the peso into U.S. dollar at the spot rate and invest it in the U.S. for 180 days, and simultaneously sell a U.S....
3. Covered International Investment What is covered interest parity? Example: Suppose that Britain and U.S. interest...
3. Covered International Investment What is covered interest parity? Example: Suppose that Britain and U.S. interest rates are SUK=0.04 and ius =0.03 respectively for 90 days, and that the spot exchange rates are $2.00/£, what is the forward exchange rate if the covered interest parity exist?
2. Assume the following information: Spot rate of Mexican peso : $.100 180-day forward rate of Mexican peso : $.098 180-...
2. Assume the following information: Spot rate of Mexican peso : $.100 180-day forward rate of Mexican peso : $.098 180-day Mexican interest rate : 6% 180-day U.S. interest rate : 5% a) What would be the return to a Mexican investor who has 1,000,000 Mexican pesos from using covered interest arbitrage? (i.e. the Mexican investor will convert the peso into U.S. dollar at the spot rate and invest it in the U.S. for 180 days, and simultaneously sell a...
Assume the following information: U.S. investors have $1,000,000 to invest: 12% 10% 1-year deposit rate offered...
Assume the following information: U.S. investors have $1,000,000 to invest: 12% 10% 1-year deposit rate offered on U.S. dollars 1-year deposit rate offered on Singapore dollars 1-year forward rate of Singapore dollars Spot rate of Singapore dollar $.412 $.400 Given this information: O interest rate parity exists and covered interest arbitrage by U.S. investors results in the same yield as investing domestically. O interest rate parity doesn't exist and covered interest arbitrage by U.S. investors results in a yield above...
Interest Rate Parity If your home country is the U.S. and based on the following information,...
Interest Rate Parity If your home country is the U.S. and based on the following information, can you take advantage of an arbitrage strategy? Forward MXN/USD 0.0479 Time (months) 2.00% 3 3.00% 0.0478 Spot MXN/USD No, because you would profit $50,000 in the U.S. which is more than the $46,077.41 you would from an arbitrage strategy. Yes, because your annual return would be 3.84% No, because you would lose $3,922.59 Yes, because would you will make a profit without investing...
Mexican interest rates are normally substantially higher than U.S. interest rates. a. Assuming that interest rate...
Mexican interest rates are normally substantially higher than U.S. interest rates. a. Assuming that interest rate parity exists, do you think hedging with a forward rate would be beneficial if the spot rate of the Mexican peso was expected to decline slightly over time? b. Would hedging with a money market hedge be beneficial if the spot rate of the Mexican peso was expected to decline slightly over time (assume zero transaction costs)? Explain. c. What are some limitations on...
Interest Rate Parity If your home country is the U.S. and based on the following information,...
Interest Rate Parity If your home country is the U.S. and based on the following information, should you invest in Mexico? Forward MXN/USD 0.0479 Time (months) 3 rh 2.00% 3.00% Spot MXN/USD 0.0478 rt Yes, because the rf is 3% which is higher than the 2% in the U.S. Yes, because your annual return would be 3.84% No, because you would lose 1.84% in annual returns No, because the implied rate is higher than the forward rate.
The 3-year US dollar interest rate is 3% and the 3-year Russian ruble interest rate is...
The 3-year US dollar interest rate is 3% and the 3-year Russian ruble interest rate is 8%. The spot exchange rate is RUB25/$ and the 3-year forward exchange rate is RUB30/$. A covered interest arbitrage opportunity exists: borrow dollars Borrow rubles because the ruble is at a forward discount A covered interest arbitrage opportunity exists: borrow rubles Borrow dollars because US interest rates are lower.
You, as a U.S. investor, find the current annual interest rate in the U.S. is 3% and the annual interest rate in Canada is 5%. The spot exchange rate for Canadian dollar is $0.95 per Canadian dollar, the 90-day Canadian dollar forward exchange rate is $0.928 per Canadian dollar. Based on covered interest rate parity theory, what is the correct 90-day forward rate of the Canadian dollar? Is there any arbitrage opportunity to trade the forward contract on Canadian dollars?
3. Covered International Investment What is covered interest parity? Example: Suppose that Britain and U.S. interest rates are SUK=0.04 and ius =0.03 respectively for 90 days, and that the spot exchange rates are $2.00/£, what is the forward exchange rate if the covered interest parity exist?
Assume the following information: U.S. investors have $1,000,000 to invest: 12% 10% 1-year deposit rate offered on U.S. dollars 1-year deposit rate offered on Singapore dollars 1-year forward rate of Singapore dollars Spot rate of Singapore dollar $.412 $.400 Given this information: O interest rate parity exists and covered interest arbitrage by U.S. investors results in the same yield as investing domestically. O interest rate parity doesn't exist and covered interest arbitrage by U.S. investors results in a yield above...
Interest Rate Parity If your home country is the U.S. and based on the following information, can you take advantage of an arbitrage strategy? Forward MXN/USD 0.0479 Time (months) 2.00% 3 3.00% 0.0478 Spot MXN/USD No, because you would profit $50,000 in the U.S. which is more than the $46,077.41 you would from an arbitrage strategy. Yes, because your annual return would be 3.84% No, because you would lose $3,922.59 Yes, because would you will make a profit without investing...
Interest Rate Parity If your home country is the U.S. and based on the following information, should you invest in Mexico? Forward MXN/USD 0.0479 Time (months) 3 rh 2.00% 3.00% Spot MXN/USD 0.0478 rt Yes, because the rf is 3% which is higher than the 2% in the U.S. Yes, because your annual return would be 3.84% No, because you would lose 1.84% in annual returns No, because the implied rate is higher than the forward rate.
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