The Brennon Group is a U.S. hedge fund that wants to benefit from the interest rate...
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The Brennon Group is a U.S. hedge fund that wants to benefit from the interest rate differential between the euro area and Japan. A euro (€) costs $1.18 today. while a yen (*) costs $0.0091 today. The fund expects the exchange rates to still be $1.18 per euro and $0.0091 per yen in 12 months. Current annual interest rates are as follows: Currency Euro Yen Borrowing rate 7.5% 4.5% Lending rate 6.5% 4.1% The fund doesn't want to invest any of its own money, but can borrow €10,000,000 or 1,000,000,000. Assume there are 30 days in every month and 360 days per year. Ignore compounding when working with the interest rates. Attempt 1/10 for 10 pts. What is the expected profit from the trade after 12 months (in S)? The Brennon Group is a U.S. hedge fund that wants to benefit from the interest rate differential between the euro area and Japan. A euro (€) costs $1.18 today. while a yen (*) costs $0.0091 today. The fund expects the exchange rates to still be $1.18 per euro and $0.0091 per yen in 12 months. Current annual interest rates are as follows: Currency Euro Yen Borrowing rate 7.5% 4.5% Lending rate 6.5% 4.1% The fund doesn't want to invest any of its own money, but can borrow €10,000,000 or 1,000,000,000. Assume there are 30 days in every month and 360 days per year. Ignore compounding when working with the interest rates. Attempt 1/10 for 10 pts. What is the expected profit from the trade after 12 months (in S)?
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SOLUTION To calculate the expected profit from the trade after 12 months we need to consider the interest rate differentials and the exchange rate mov... View the full answer
Related Book For
Multinational Finance Evaluating Opportunities Costs and Risks of Operations
ISBN: 978-1118270127
5th edition
Authors: Kirt C. Butler
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