Given the information: Interest rate in US (Rh): 4% Interest rate in UK (RF): 2% Line...
Given the information: Interest rate in US (Rh): Interest rate in UK (Rf): The current spot rate for GBP (SR): 6% 4% $1.50 Suppose your lines of credit are USD 15,000,000 in the US and GBP 10,000,000 in UK. If your forecast tells you that the spot rate of GBP one year later (SR1) will be $1.535, then your preferred investment strategy should earn a net profit of: GBP 41,694 GBP 200.000 USD 64.000 USD 300,000
The US interest rate is i$ = 3 % for the next year and the UK interest rate is i£ = 6%. If I borrow money in UK and invest in US for the next year, uncovered IRP (carry trade) suggests that I will make money if and only if:
Currently the spot exchange rate is $1.558 per pound (USD/GBP). The interest rate in the UK is 6%. The one-year forward exchange rate is $1.5200/GBP. If interest rate parity holds, what must be the US interest rate for the same period?
1) Assume the interest rate is 4% in the UK and 8% in Australia. The forward GBP/AUD is 187 AUD. Compute the spot GBP/AUD that makes the IRP hold. Show your work . 2) The spot EUR/USD is 1.12 and the forward rate is 1.1. The interest rate in France is 3% and 4% in the US. a) Does the iRP hold? b) If not, how could you make a CIA profit by using 1000 EUR? Show your work. c)...
2) The spot USD /GBP rate is 1.1505. The1 year t-bill rate in the US is .9335%. The 1 year rate in the UK is 0.7969%. a) Calculate the 1 year USD/GBP 1 year forward rate. b) If the observed 1 year forward rate is 1.35 USD/GBP, is there an arbitrage opportunity? How would you take advantage of this? Show all your transactions and steps.
The US 1-year interest rate is 5% per year and the 1-year UK interest rate is 3%. The spot rate is $1.55/pound and the 1-year forward rate is $1.60/pound. The optimal strategy is for an investor to borrow pounds because the pound is at a forward premium The optimal strategy is for an investor to borrow dollars Interest Rate Parity holds, so there is no advantage to borrowing dollars or pounds The optimal strategy is to borrow pounds because UK...
investors in both the US and the UK require the same real interest rate, 3% on their lending. there is a consensus in the capital market that the annual inflation rate is likely to be 2% in the US and 1.5% in the UK for the next three years. the spot exchange rate is currently 1.50 using panity conditions, what is the most likely forward dollar-pound exchange rate for one-year maturity?
Given the following information: Canada is your home country and the US is a foreign country. The spot exchange rate St is, CA$ 1.30 = US$ 1 Forward exchange rate Ft is, CA$ 1.32 = US$ 1 Expected future exchange rate Set+1 is, CA$ 1.33 = US$ 1 Interest rate in Canada is, rt = 5 % Interest rate in the US is, rt = 3% (i) If you want to borrow from the US and invest in Canada what...
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.
investors in both the US and the UK require the same real interest rate, 3% on their lending. there is a consensus in the capital market that the annual inflation rate is likely to be 2% in the US and 1.5% in the UK for the next three years. the spot exchange rate is currently 1.50 using panity conditions, what is the most likely forward dollar-pound exchange rate for one-year maturity?