Tuli Super Minerals of Manicaland exports raw diamonds valued at one million pounds (£1,000,000) on 180 days credit on simple interest to the European Union (EU). The prevailing interest rates gazetted from UK banks and Zimbabwean (ZW) banks are as follows: Deposit rate Lending rate UK 8% 10% ZW 20% 50% In addition, assume that the prevailing spot exchange rate is ZW/UK Pounds is 135.00-145.00 And the number of days in a year is 360 days. Calculate the amount that would be receivable by Tuli Super Minerals if the money market hedge is applied.

Tuli Super Minerals of Manicaland exports raw diamonds valued at one million pounds (£1,000,000) on 180 days credit on simple interest to the European Union (EU). The prevailing interest rates gazetted from UK banks and Zimbabwean (ZW) banks are as follows: Deposit rate Lending rate UK 8% 10% ZW 20% 50% In addition, assume that the prevailing spot exchange rate is ZW/UK Pounds is 135.00-145.00 And the number of days in a year is 360 days. Calculate the amount that would be receivable by Tuli Super Minerals if the money market hedge is applied.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter22: International Financial Management

Section: Chapter Questions

Problem 8P

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Tuli Super Minerals of Manicaland exports raw diamonds valued at one million pounds (£1,000,000) on 180 days credit on simple interest to the European Union (EU). The prevailing interest rates gazetted from UK banks and Zimbabwean (ZW) banks are as follows: Deposit rate Lending rate UK 8% 10% ZW 20% 50% In addition, assume that the prevailing spot exchange rate is ZW/UK Pounds 130.00 – 145.00 And the number of days in a year is 360 days. Calculate the amount that would be receivable by Tuli Super Minerals if the money market hedge is applied
Below is the information regarding U.S. and Canadian annualized interest rates: Currency Lending Rate Borrowing Rate U.S Dollar ($) 6.73% 7.20% Euro (€) 6.80% 7.28% Note: Spot rate of Euro is $1.13 An international bank can borrow either 20 million U.S. dollars or 20 million euro. The bank expects the spot rate of the euro is $1.10 in 90 days, which is equal to ______ profit. A. $583,800 B. $588,200 C. $584,245 D. $579,845
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Assume the following information regarding U.S. and European annualized interest rates: Currency Lending Rate Borrowing Rate U.S. Dollar ($) 6.73% 7.20% Euro (€) 6.80% 7.28% Trensor Bank can borrow either $20 million or €20 million. The current spot rate of the euro is $1.13. Furthermore, Trensor Bank expects the spot rate of the euro to be $1.10 in 90 days. What is Trensor Bank's dollar profit from speculating if the spot rate of the euro is indeed $1.10 in 90 days? Group of answer choices $579,845. $583,800. $588,200. $584,245. $980,245.
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Currently, the spot exchange rate is $1.59 per £ and the three-month forward exchange rate is $1.61 per £. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as $1,590,000 or £1,000,000. Required: Determine whether the interest rate parity is currently holding. If the IRP is not holding, how would you carry out covered interest arbitrage? What will be your arbitrage profit? Explain how the IRP will be restored as a result of covered arbitrage activities.
Currently, the spot exchange rate is CHF 0.89/$ and the three-month forward exchange rate is CHF 0.86/$. The three-month interest rate is 5.6% per annum in the U.S. and 4.0% per annum in Switzerland. Assume that you can borrow as much as $1,120,000 or CHF 1,000,000. A. Determine whether the interest rate parity is currently holding. B. If the IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit. C. Explain how the IRP will be restored as a result of covered arbitrage activities.
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