The Cambodian interest rate is 6% and the Vietnam interest rate is 7%. The spot exchange rate of one Cambodian riel is 5.6 Vietnamese dong (VND) and the one-year forward rate of riel is VND5.7. About potential covered interest arbitrage (CIA) between Cambodia and Vietnam, _____. a. there will be no CIA b. money will flow to Cambodia c. money can go both ways d. money will flow to Vietnam

The Cambodian interest rate is 6% and the Vietnam interest rate is 7%. The spot exchange rate of one Cambodian riel is 5.6 Vietnamese dong (VND) and the one-year forward rate of riel is VND5.7. About potential covered interest arbitrage (CIA) between Cambodia and Vietnam, _____. a. there will be no CIA b. money will flow to Cambodia c. money can go both ways d. money will flow to Vietnam

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter11: Managing Transaction Exposure

Section: Chapter Questions

Problem 1ST

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The Cambodian interest rate is 6% and the Vietnam interest rate is 7%. The spot exchange rate of one Cambodian riel is 5.6 Vietnamese dong (VND) and the one-year forward rate of riel is VND5.7. If there now occurs a change in the interest differential such that money flows from Vietnam to Cambodia in a covered interest arbitrage, as a result of this money flow the forward riel exchange-rate will _____. a. depreciate b. appreciate c. remain the same
Lee Junho who is a currency trader in Japan observers the following marketconditions:• Annual interest rate in Japan: 1.5% per annum• Annual interest rate in France: 7.0% per annum• Current spot exchange rate: ¥ 114.4733/€• One-year forward exchange rate: ¥ 110.2423/€• No transaction costs If Lee Junho can borrow ¥100,000,000, specific the transactions he may carryout in order to make some arbitrage profit and calculate the amount of theprofit
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An investor based in the US invests $1,200 in Mexico and this generates a future value in one year of $1,344.44, US. If the interest rate in Mexico is 10% and the future expected exchange rate is Et41 = 5.4, this implies that the current exchange rate must be O 5.25 O 5.7 O 4.85 O 5.5
(Problem 3) Currently, the spot exchange rate is $1.50/£ and the three-month forward exchange rate is $1.52/£. 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 $1,500,000 or £1,000,000. 1. Determine whether the interest rate parity is currently holding (just enter either yes or no): 2. If the IRP is not holding, compute and enter the total amount of arbitrage profit in dollars round to zero decimal. A positive number means profit. A negative number means loss) 3. If the IRP is not holding, compute and enter the total amount of arbitrage profit in pound i.e., round to zero decimal. A positive number means profit. A negative number means loss) (just enter yes or no) (if your profit is $2,000.00, just enter "2,000", i.e., (if your profit is 2,000.00 pound, just enter "2,000",