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Bank of Texas has the capacity to borrow 20 million in Canadian dollars (C$)




1. Bank of Texas has the capacity to borrow 20 million in Canadian dollars (C$) or 10 million in U.S. dollars ($). The bank believes that the C$ will appreciate over the next 10 days from $.35 to $.37.;U.S. $;Lending Rate: 7.50%;Borrowing Rate: 8.00%;C$;Lending Rate: 7.20%;Borrowing Rate: 7.60%;Assuming the forecast is correct, what will be its U.S. $ profit from currency speculation over the 10 day period?;2. A US firm has a 100,000 Mexican peso receivable. The company has purchased a currency put option to hedge the receivable. The premium is $.02 and the exercise price is $.80. The spot rate of the peso at the time that the option matures is $.87.;A. Will the company exercise the option, assuming it acts in a normal profit-seeking manner?;B. What will be the net amount that the company receives or pays out depending on whether it exercises the option?;3. The inflation rate in the United States is expected to be 3 percent over the next year, while the Canadian inflation rate is expected to be 2 percent. The current spot rate of the Canadian $ is $1.03. Using purchasing power parity, the expected spot rate at the end of one year is $_______.;4. For the Singapore $ (S$) the bid rate is $.34 and the ask rate is $.345 at Bank A. At Bank B, the bid rate is $.33 and the ask rate is $.335. What will be your profit if you have $2,000,000 to invest and execute locational arbitrage?;5. Facts;$2,000,000 available for investment;Spot rate today of Swiss franc = $.60;Expected spot rate 1 year from now = $.64;1-year forward rate as of today for Swiss franc = $.63;Rate on 1 year deposits denominated in Swiss francs = 5%;Rate on 1 year deposits denominated in U.S. dollars = 7%;What rate of return will a U.S. investor earn using covered interest arbitrage?;6. Assume interest rate parity exists. The U.S. 5-year interest rate is 6% annualized and the Burundian 5-year interest rate is 9% annualized. The spot rate today on the Burundian franc is $.40. If the 5-year forward rate of the franc is used as the basis for the forecast, what is the approximate 5-year forecast of the franc?s spot rate?;7. You expect to receive 10,000,000 Guinean francs 90 days from now. You hedge your position by selling the franc forward. The current spot rate of the franc is $.0090 and the forward rate is $.0096. In 90 days, you expect the spot rate to be $.0091. How many U.S. dollars will you receive for the 10,000,000 francs 60 days from now, assuming your forecast is correct?;8. You believe the forward rate is accurate in forecasting the spot rate. The forward rate of the Gibralter pound contains a 7% discount. The spot rate today is $.85. You estimate the spot rate one year ahead;for the pound will be ______.;9. A company?s Subsidiary A has net inflows of 1,000,000 Indian rupees while subsidiary B has net outflows of 2,000,000 Indian rupees. The exchange rate of the Indian rupee is $.60. What is the net inflow or outflow in U.S. dollars?;10. Facts;U.S. $ lending rate = 6.70%;U.S. $ borrowing rate = 7.20%;Canadian $ lending rate = 6.90%;Canadian $ borrowing rate = 7.30%;10. CitiBank can either borrow U.S. $10 million or 20 million in Canadian $ (C$). The current spot rate for the C$ is $1.12. CitiBank expects the spot rate of the Canadian $ to be $1.10 in 120 days. What is CitiBank?s profit from speculation if the spot rate of the C$ is $1.10 in 120 days?;11. Facts;U.S. investors have $1,000,000 to invest;1-year deposit rate offered on U.S. dollars = 13%;1-year deposit rate offered on Bahamian dollars = 11%;1-year forward rate of Bahamian dollars = $.512;Spot rate of Bahamian dollar = $.500;A. Does interest rate parity exist? Justify your answer.;B. Can covered interest arbitrage be used to the investors to earn a yield above that possible domestically? Justify your answer.;12. U.S. Firm wants to hedge 10.0 million pesos in accounts receivable from a Mexican firm with an option. The exercise price of the option is $.50 while the premium is $.04. What is the total amount of U.S. $ to be received upon exercising the option (taking into account the premium paid)?


Paper#29648 | Written in 18-Jul-2015

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