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international Finance




international Finance;Homework Set Week 10;Chapter 20;Question 11. IRP Application to Short-Term Financing;Assume that the U.S. interest rate is 7 percent and the euro? interest rate is 4 percent. Assume that the euro?s forward rate has a premium of 4 percent. Determine whether the following statement is true: ?Interest rate parity does not hold, therefore, U.S. firms could lock in a lower financing cost by borrowing euros and purchasing euros forward for 1 year.? Explain your answer.;Question 19. Financing with a Portfolio;Raleigh Corp. needs to borrow funds for 1 year to finance an expenditure in the United States. The following interest rates are available;Country;Borrowing Rate;U.S;10%;Canada;6%;Japan;5%;The percentage changes in the spot rates of the Canadian dollar and Japanese yen over the next year are as follows;Canadian Dollar;Japanese Yen;Probability;Percentage in spot rate;Probability;Percentage in Spot Rate;10%;5%;20%;6%;90%;2%;80%;1%;If Raleigh Corp. borrows a portfolio that has 50 percent of funds from Canadian dollars and 50 percent of funds from yen, determine the probability distribution of the effective financing rate of the portfolio than from borrowing U.S. dollars?;Chapter 21;Question 12. Effective Yield;Assume that the 1-year U.S. interest rate is 10 percent and the 1-year Canadian interest rate is 3 percent and the 1-year Canadian interest rate is 3 percent. If a U.S. firm invests its funds in Canada, by what percentage will the Canadian dollar have to depreciate to make its effective yield the same as the U.S. interest rate from the U.S. firms? perspective?;Question 18. Investing in a Portfolio;Pittsburg Co. plans to invest its excess cash in Mexican pesos for 1 year. The 1-year Mexican interest rate is 19 percent. The probability of the peso?s percentage change in value during the next year is shown next;Possible Rate of Change in the Mexican peso;Over the Life of the Investment;Probability of Occurrence;-15%;20%;-4;50%;0;30%;What is the expected value of the effective yield based on this information? Given that the U.S. interest rate for 1 year is 7 percent, what is the probability that a 1-yearinvestment in pesos will generate a lower effective yield than could be generated if Pittsburgh Co. simply invested domestically?


Paper#28396 | Written in 18-Jul-2015

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