Suppose the spot price of the British pound is currently $1.50. If the risk-free interest rate on one-year government bonds is 4% in the United States and 3% in the United Kingdom, what must the forward price of the pound be for delivery one year from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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Suppose the spot price of the British pound is currently $1.50. If the risk-free interest rate on one-year government bonds is 4% in the United States and 3% in the United Kingdom, what must the forward price of the pound be for delivery one year from now? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
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- Assume the spot price of the British pound is currently $1.65. If the risk-free interest rate on 1-year government bonds is 4.5% in the United States and 6.3% in the United Kingdom, what must be the forward price of the pound for delivery 1 year from now? (Round your answer to 3 decimal places. Omit the "$" sign in your response.) Forward pricea. The spot price of the British pound is currently $1.50. If the risk-free interest rate on 1-year government bonds is 1% in the United States and 2% in the United Kingdom, what must be the forward price of the pound for delivery one year from now?b. How could an investor make risk-free arbitrage profits if the forward price were higher than the price you gave in answer to part (a)? Give a numerical example.Suppose that the exchange rate is $0.92/Euro. The dollar-denominatedinterest rate is 4% and the euro-denominated interest rate is 3%.u = 1.2, d = 0.9, T = 0.75, n = 3, and K = $1.00.a. What is the price of a 9-month European put?b. What is the price of a 9-month American put?
- Suppose that the U.S. interest rate on one year Treasury notes was 4.7%. We will use this as the annual interest rate in the U.S. And suppose that the interest rate on the one-year German Treasury note was 4.2%. The spot rate is 1.0162 EUR/USD. And the 3-month forward rate is 1.0188 Eur/USD. Is there an opportunity for covered interest arbitrage? If so, what would be the total profit if we borrowed $25 million? OA YES-$27,395.21 would be the profit OB. YES-$33,385.41 would be the profit OC. YES-$37,342.89 would be the profit OD. NO- there is no opportunity for a profitUsing the UIP equation, assume that the expected future rate (after one year) for euros (in terms of dollars) equals $1.20, while the current spot rate is 1.15. The current interest rate on euro deposits is 2%, and the interest rate on dollar deposits is 3%. Should you invest in the US or in Europe? Neither one In the US In Europe It is indifferentIf the current exchange rate is $1.70/£, the one-year forward exchange rate is $1.80/£, and the interest rate on British government bills is 5% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Risk-free dollar-denominated return %
- Suppose the dollar interest rate and the pound sterling interest rate are the same, 6 percent per year. What is the relation between the current equilibrium dollar/pound exchange rate and its expected future level? O A. Expected dollar/pound exchange rate is higher than the current one. O B. Expected dollar/pound exchange rate is lower than the current one. C. Expected dollar/pound exchange rate is equal to the current one. O D. One cannot tell given the information above. Suppose the expected future exchange rate, $1.44 per pound, and the US interest rate remain constant, while Britain's interest rate rises to 8 percent per year. What is the new equilibrium dollar/pound exchange rate? New equilibrium exchange rate is $ per pound. (Enter your response to the nearest penny.)If the current exchange rate is $1.55/£, the one-year forward exchange rate is $1.70/£, and the interest rate on British government bills is 8% per year, what risk-free dollar-denominated return can be locked in by investing in the British bills? (Do not round intermediate calculations. Round your percentage answer to 2 decimal places.)The current exchange rate from dollars to British pounds is 1.03 ($/pound). The current dollar denominated continuously compounded risk-free rate 4% and you observe the current pound forward contract with 3 years to maturity to have a forward price of $1.11 .a. What is the implied pound denominated risk-free rate? b. If the actual pound denominated risk-free rate is 0%, how would you create an arbitrage opportunity? c. What is the arbitrage profit from your strategy in part b?
- Currently, you canexchange 1 euro for 1.25 dollars in the 180-dayforward market, and the risk-free rate on 180-daysecurities is 6% in the United States and 4% inFrance. Does interest rate parity hold? If not, whichsecurities offer the highest expected return?Suppose current one-year interest rate in Europe is 5%, whereas one-year interest rate in the U.S. is 3%. Assume the current spot price of euro (EUR) is $1.10. Answer questions a) and b) below. If the exchange rate movement is consistent with the international Fisher effect (IFE), what will the spot price of EUR in one year be? Consider a trader who does not believe the IFE holds. The trader has decided to borrow $110,000 to invest in EUR-denominated deposits for one year without hedging. Recall the current EUR spot rate is $1.10. If the EUR spot rate in one year turns out to be $1.09, what will be the percentage return on this trading strategy?In a market with an unchanged current exchange rate where the interest parity condition holds, if investors now expect the exchange rate to be 6.25% lower a year from now, the return on foreign bonds with an interest rate of 5.75%would be ____enter your response here%. (Enter your response rounded to two decimal places.)
