Suppose that the one-year interest rate is 5.0% in the United States and 3.5% in Germany,...
Suppose that the one-year interest rate is 5.0% in the United States and 3.5% in Germany, and the one-year forward exchange rate is USD/EUR 1.16. What must be the spot exchange rate to eliminate arbitrage opportunities?
Homework Answers
one year forward rate USD/EUR
=> f = spot rate * (1 + dollar interest rate) / (1+ euro interest rate)
=>1.16 = spot rate*(1.05) / (1.035)
=>spot rate = 1.16 / 1.01449275
=>spot rate = 1.14 USD /EUR (rounded to two decimals).
spot rate to eliminate arbitrage opportunities = 1.14 USD./EUR
Add Answer to:
Suppose that the one-year interest rate is 5.0% in the United
States and 3.5% in Germany,...
Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent...
Suppose that the one-year interest rate is 5.0 percent in the United States and 3.5 percent in Germany, and that the spot exchange rate is $1.12/€ and the one-year forward exchange rate, is $1.16/€. Assume that an arbitrageur can borrow up to $1,000,000. This is an example where interest rate parity holds. This is an example of an arbitrage opportunity; interest rate parity does not hold. This is an example of a Purchasing Power Parity violation and an arbitrage opportunity....
Suppose that the effective 6-month interest rate is 4.0 percent in the United States and the...
Suppose that the effective 6-month interest rate is 4.0 percent in the United States and the effective 6-month interest rate in Germany is 8 percent, and that the spot exchange rate is 1.60 USD/EUR and the forward exchange rate, with six-month maturity, is 1.58 USD/EUR. A. Clearly show whether IRP condition holds or not and explain whether there is an arbitrage opportunity for the home or the foreign investor or neither. B. Assume that an arbitrageur can borrow up to...
Suppose the annual interest rate is 2 percent in the US and 4 percent in Germany, the spot exchange rate is USD 1.60 / E...
Suppose the annual interest rate is 2 percent in the US and 4 percent in Germany, the spot exchange rate is USD 1.60 / EUR, and the 1year forward rate is USD 1.58 / EUR. What is the arbitrage profit in USD at the end of the year if you start by borrowing USD 5,000,000?
Suppose your broker give you the following information: Spot exchange rate (USD/EUR) = 1.1370 One year...
Suppose your broker give you the following information: Spot exchange rate (USD/EUR) = 1.1370 One year forward rate (USD/EUR) = 1.1405 One year USD interest rate = 0.87% One year Euro interest rate = 0.65% a. Is there any violation of interest rate parity? b. How would you take advantage of any arbitrage situation? c. What is your profit? d. Suggest an equilibrium value for the forward rate
QUESTION 1: Suppose that the current spot exchange rate is GBP1= €1.50 and the one-year forward...
QUESTION 1: Suppose that the current spot exchange rate is GBP1= €1.50 and the one-year forward exchange rate is GBP1=€1.60. One-year interest rate is 5.4% in euros and 5.2% in pounds. If you have EUR1,000,000, what is the Covered Interest arbitrage profit in EUR? QUESTION 2: Suppose that the current spot exchange rate is GBP1= €1.50 and the one-year forward exchange rate is GBP1=€1.60. One-year interest rate is 5.4% in euros and 5.2% in pounds. If you conduct covered interest...
i. The one-year interest rate in the US. is is-200 and in the euro zone the...
i. The one-year interest rate in the US. is is-200 and in the euro zone the one-year interest rate is ie = 6%. The one-year forward exchange rate is $1.20 = €1.00, what must the spot rate be to eliminate arbitrage opportunities? A), є 1.2471-$1.00 B). € 1.00 = $ 1.2471 C).1.00 $1.1547
Country USD Nominal Rate 2.5% GBP 3.5% The above table contains nominal interest rate information for the United States...
Country USD Nominal Rate 2.5% GBP 3.5% The above table contains nominal interest rate information for the United States and Great Britain. Assume the current U.S. dollar-British spot rate is GBP0.6134/USD. what is the approximate forward exchange rate for delivery 360 days from now? [Assume the USD is the home currency (currency of interest)] 0 GBP 0.6195/USD GBP 0.6073/USD USD 0.6195/GBP 0 USD0.6073/GBP
Suppose that the annual interest rate is 2.5 percent in Korea and 4.2 percent in Germany, and tha...
Suppose that the annual interest rate is 2.5 percent in Korea and 4.2 percent in Germany, and that the spot exchange rate is Won1933.2/€ and the forward exchange rate, with one-year maturity, is W1915.5/€. Assume that a trader can borrow up to €2,000,000 or Won3,866,400,000. Does the interest rate parity hold? Show your work. Is there an arbitrage opportunity? (covered interest arbitrage) If there is an arbitrage opportunity, what steps should we take in order to make an arbitrage profit?...
Currently, the spot exchange rate is $0.85/A$, and the one-year forward exchange rate is $0.81/A$. One-year...
Currently, the spot exchange rate is $0.85/A$, and the one-year forward exchange rate is $0.81/A$. One-year interest is 3.5% in the United States and 4.2% in Australia. You may borrow up to $1,000,000 or A$1,176,471, which is equivalent to $1,000,000 at the current spot rate. Determine if Interest Rate Parity (IRP) is holding between Australia and the United States. If IRP is not holding, explain in detail how you would realize certain profit in U.S. dollar terms. Explain how IRP...
The one-year interest rate in Germany 3.0 percent. The spot exchange rate is $1.20/€ and the...
The one-year interest rate in Germany 3.0 percent. The spot exchange rate is $1.20/€ and the one-year forward exchange rate is $1.18/€. What is the one-year interest rate be in the U.S.? Multiple Choice 2.63% 4.75% None of the options. 3.50% 1.28%
i. The one-year interest rate in the US. is is-200 and in the euro zone the one-year interest rate is ie = 6%. The one-year forward exchange rate is $1.20 = €1.00, what must the spot rate be to eliminate arbitrage opportunities? A), є 1.2471-$1.00 B). € 1.00 = $ 1.2471 C).1.00 $1.1547
Country USD Nominal Rate 2.5% GBP 3.5% The above table contains nominal interest rate information for the United States and Great Britain. Assume the current U.S. dollar-British spot rate is GBP0.6134/USD. what is the approximate forward exchange rate for delivery 360 days from now? [Assume the USD is the home currency (currency of interest)] 0 GBP 0.6195/USD GBP 0.6073/USD USD 0.6195/GBP 0 USD0.6073/GBP
Most questions answered within 3 hours.
-
Silly-Sort(A,i,j)
if A[i] > A[j]
then exchange A[i] and A[j];
if i+1 >= j
then return;...
asked 1 minute from now -
Discuss the major contributions of Max Weber in understanding
the society theoretically. [10]
asked 1 minute ago -
The rate constant for a certain reaction is k =
8.50×10−3 s−1 . If the initial...
asked 12 minutes ago -
a 5.00 kg ball moving to the right at a velocity of + 2.00 m /...
asked 6 minutes ago -
A charged paint is spread in a very thin uniform layer over the
surface of a...
asked 9 minutes ago -
The lifetime of a physical mechanism is given as f(x) = {(c/x^2
if 1< x <...
asked 17 minutes ago -
Please help me with this problem below
What is wrong with the following code?
if income...
asked 26 minutes ago -
The following information for the past year is available from
Thinnews Co., a company that uses...
asked 30 minutes ago -
Suppose you work for Allstate, and insurance company and the
data shows the following for auto...
asked 30 minutes ago -
The fresh fruit market and frozen dinner market are
currently in equilibrium. Fresh fruit is a...
asked 35 minutes ago -
(1 point) Golf-course designers have become concerned that old
courses are becoming obsolete since new technology...
asked 33 minutes ago -
The active retelling of dominant cultural stories is known
preserves which concept?
hegemony
heterodoxy
doxa
myth
asked 37 minutes ago