With regard to hedging and forecasting, a Eurozone firm is expecting a receivable of $1 million in six months. Right now at the market the forward rate of six months for the dollar is $1.2 to a euro. Staff presents two forecast: $1.11 and $1.05. Suppose it is known also that the future spot rate in the six months happens to be $1.1. Which of the forecasts should be taken by the firm and why?
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With regard to hedging and
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- Suppose one Euro can purchase 1.25 U.S. dollars today in the foreign exchange market, and currency forecasters predict that the Euro will depreciate by 20% against the US dollar over the next 60 days. How many dollars will a Euro buy in 60 days? (Please show work)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 = $1.00.a. What is the price of a 9-month European put?b. What is the price of a 9-month American put?Suppose the spot and six-month forward rates on the Norwegian krone are NKr 9.14 and NKr 9.27, respectively. The annual risk-free rate in the United States is 3.8 percent, and the annual risk-free rate in Norway is 5.7 percent. What must the six-month forward rate be to prevent arbitrage? Note: Do not include the Norwegian krone sign (NKr). Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Forward rate NKr
- Suppose that the current exchange rate between the Japanese yen (¥) and the U.S. dollar ($) is ¥100 = $1. A financial analyst predicts that the exchange rate will be ¥94 = $1 next year. If the analyst uses purchasing power parity as the basis of the prediction, the analyst expects that the yen willIn a recent e-news, you observe that the 6-month forward rate is $1.5031/Euro. Further, if you invest the dollar, it fetches you interest at the rate of 2% p.a. In comparison, the interest rate in Eurozone is 1% p.a. You also see that CAD 1.5513 are needed to purchase a Euro and CAD 1.332 are needed to buy a US$. Is it possible for you to make an arbitrage profit? If so, which arbitrage strategies will you employ and what will be the profit? Assume that interest rate parity holds and you have one million dollars available to conduct arbitrage.Suppose the year 1, year 2 and year 3 forecasts for the rate of inflation in Denmark are 3%, 4% and 5% respectively. Suppose also that the year 1, year 2 and year 3 forecasts for the rate of inflation in France are 11%, 9% and 8% respectively. If the expected spot rate between the Danish Krone (DKK) and the EUR is EUR0.1344/DKK at the end of year 3, what is the current spot rate? a.EUR0.119024/DKK b.EUR0.151762/DKK c.EUR0.111027/DKK d.EUR0.128269/DKK e. Not enough information to answer this question.
- Suppose the year 1, year 2 and year 3 forecasts for the rate of inflation in Denmark are 3%, 4% and 5% respectively. Suppose also that the year 1, year 2 and year 3 forecasts for the rate of inflation in France are 11%, 9% and 8% respectively. If the expected spot rate between the Danish Krone (DKK) and the EUR is EUR0.1344/DKK at the end of year 3, what is the current spot rate? a. EUR0.119024/DKK b. EUR0.151762/DKK c. EUR0.128269/DKK d. EUR0.111027/DKK e. Not enough information to answer this question.Assume that Volt Cars Co. (a European company with headquarters in Luxembourg) will receive E154000 in 45 days. Today's spot rate of the British pound is €0.41. The 45-day forward rate is €O.43. Volt Cars Co. has developed the following probability distribution for the spot rate in 45 days: Possible Spot Rate in 45 Days Probability €0.40 17% €0.42 22% €0.44 35% €0.46 26% The probability that the forward hedge will result in a lower Euro-amount received than not hedging is:Using 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 indifferent
- Haines Co. expects to receive 5 million euros tomorrow as a result of selling goods to Belgium. Haines estimates the standard deviation of daily percentage changes of the euro to be 1 percent over the last 100 days. Assume that these percentage changes are normally distributed. Using the value-at-risk (VaR) method based on a 95% confidence level, what is the maximum one-day loss (in dollars) if the expected percentage change of the euro tomorrow is 0.5%? -$110,000 -$57,500 -$60,000 -$75,000 $-25,000You took a long position on EUR when the prevailing market rate was EUR/USD: 1.3223-1.3227. After six months, you want to square your net FX position to take profits. Which of the following scenarios will yield you maximum profits? Scenario A: at EUR/USD 1.3245 – 1.3253 Scenario B: at EUR/USD 1.3230 – 1.3255 Scenario C: at EUR/USD 1.3231 – 1.3235 Scenario D: at EUR/USD 1.3247 – 1.3252 You took a short position on GBP when the prevailing market rate was GBP/USD: 1.3223-1.3227. After six months, you want to square your net FX position when the prevailing market rate is GBP/USD 1.3218-1.3221. How may pips did you earn? 5 pips 9 pips 2 pips .0009 pips If you want to square your long GBP position, at what rate are you going to sell GBP to maximize profits given GBP/USD quotes from three counterparties? BDO: 1.35-45 BPI: 1.40-55 SECB: 1.50-1.65 1.35 1.50 1.65 1.45 Given “RTB 5-12”, which of the following statements is correct? This is a 5-yr RTB issued in 2012 This…Suppose the spot and six-month forward rates on the Norwegian krone are Kr 5.77 and Kr 5.92, respectively. The annual risk-free rate in the United States is 3.57 percent, and the annual risk-free rate in Norway is 5.27 percent. What would the six-month forward rate need to be on the Norweigan krone to prevent arbitrage?