There is $500,000 to invest. U.S is offering a 60-day interest rate of 6 percent per annum, while Malaysia is giving 12 percent per annum for a tenure of 60 days. The spot rate of Ringgit Malaysia (RM) is $0.110 and the forward rate is $0.108. Ignoring all the tax effects, Would an American investor or Malaysian investor benefit from this arbitrage?
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There is $500,000 to invest. U.S is offering a 60-day interest rate of 6 percent per annum, while Malaysia is giving 12 percent per annum for a tenure of 60 days. The spot rate of Ringgit Malaysia (RM) is $0.110 and the forward rate is $0.108. Ignoring all the tax effects, Would an American investor or Malaysian investor benefit from this arbitrage?
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- The 6-month interest rate in the US is 12.25% p.a. The 6-month interest rate in Canada is 15.25% p.a. The spot rate is US$0.8203/Canadian$ and the 6-month forward rate is US$0.8113/Canadian$. For a transaction size of US$700,000, how can an investor take advantage of the situation without taking undue risks? Ignore transaction costs and income taxesa) Assume the following information: 180‑day U.S. interest rate = 8% 180‑day British interest rate = 9% 180‑day forward rate of British pound = $1.50 Spot rate of British pound = $1.48 Assume that a U.S. exporter will receive 400,000 pounds in 180 days. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated revenue for each type of hedge. b) As treasurer of a U.S. exporter to Canada, you must decide how to hedge (if at all) future receivables of 250,000 Canadian dollars 90 days from now. Put options are available for a premium of $.03 per unit and an exercise price of $.80 per Canadian dollar (CA$). The forecasted spot rate of the CA$ in 90 days follows: Future Spot Rate Probability (%) $.75 50…Suppose you are a U.S. investor who is planning to invest $805,000 in Mexico. Your Mexican investment gains 10.2 percent. If the exchange rate moves from 12.4 pesos per dollar to 12.7 pesos per dollar over the period, what is your total return on this investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Total return 4
- Suppose you, a German importer, expect to pay $1 million in 90 days for taking delivery of import goods from a U.S. exporter. St = $1.14/€; Ft, k = $1.16/€, where k =90 days. If St+k = $1.15/€, what would be the gain or loss from the forward hedge relative to remaining unhedged?As a US investor willing to invest $1,000,000 with the information given below: Spot rate of £ =$1.60 180-day forward rate of £ =$1.56 180-day British interest rate = 4% 180-day US interest rate = 3% Is the Covered Interest Arbitrage by the investor is feasible? Explain Does the Interest Rate Parity Condition exist given the above information?Assume the following information: Spot rate of Mexican peso $0.100 1-year forward rate of Mexican peso $0.099 1-year Mexican interest rate 6% 1-year U.S. interest rate 5% 1. Given this information, what would be the yield (percentage return) to a U.S. investor who used covered interest arbitrage? (Assume the investor invests $1,000,000.) 2. What market forces would occur to eliminate any further possibilities of covered interest arbitrage?
- Smart Banking Corp. can borrow $5 million at 6 percent annualized. It can use theproceeds to invest in Canadian dollars at 9 percent annualized over a 6-day period. TheCanadian dollar is worth $.95 and is expected to be worth $.94 in 6 days. Based on thisinformation, should Smart Banking Corp. borrow U.S. dollars and invest in Canadiandollars? What would be the gain or loss in U.S. dollars?I Suppose you are a U.S. investor who is planning to invest $905,000 in Mexico. Your Mexican investment gains 11.2 percent. If the exchange rate moves from 13.4 pesos per dollar to 13.7 pesos per dollar over the period, what is your total return on this investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Answer is complete but not entirely correct. 79,322.91 % Total returnSuppose you are a U.S. investor who is planning to invest $845,000 in Mexico. Your Mexican investment gains 10.6 percent. If the exchange rate moves from 12.8 pesos per dollar to 13.1 pesos per dollar over the period, what is your total return on this investment? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
- The interest rate in Japan is 0.5% and the interest rate in the US is 4.5%. The spot exchange rate is ¥100 per dollar and the one year ahead forward rate is ¥98 per dollar. What is the profit made via covered interest arbitrage if you start by borrowing 1 million yen and investing in the US market? Assume borrowing and lending rates are identical. State the profits in dollars.The spot rate between Canada and the U.S. is Can$1.2398/$, while the one-year forward rate is Can$1.2397/$. The risk-free rate in Canada is 4.31 percent and risk-free rate in the United States is 2.60 percent. How much in profit can you earn on $6,500 utilizing covered interest arbitrage? Multiple Choice $89.36 $110.60 $97.73 $124.43 $111.70 part B, The annual inflation rate in the U.S is expected to be 2.68 percent and the annual inflation rate in Poland is expected to be 4.21 percent. The current spot rate between the zloty and dollar is Z4.0992/$. Assuming relative purchasing power parity holds, what will the exchange rate be in four years? Multiple Choice Z4.2902/$ Z4.3559/$ Z3.8540/$ Z3.9139/$ Z4.2256/$The spot rate between Canada and the U.S. is Can$1.2416/$, while the one-year forward rate is Can$1.2415/$. The risk-free rate in Canada is 4.43 percent and risk-free rate in the United States is 2.66 percent. How much in profit can you earn on $7,000 utilizing covered interest arbitrage? $108.93 $99.59 $123.31 $138.73 $124.49