1. A holder of euro is considering investing in the US to exploit the higher interest rate....
Question:
1. A holder of euro is considering investing in the US to exploit the higher interest rate. A US bank has quoted the following details: Bid Quote Ask Quote Euro spot $1.28 $1.30 Euro one-year forward $1.30 $1.31 Deposit rate Interest rate on dollars 7.5% Interest rate on euros 6.5% You have 100,000 euros to invest for one year.
Would you benefit from engaging in covered interest arbitrage? Decompose the Gain/Loss of this investment and calculate the Net Gain/Loss (%) for this investment
2. A Ghanaian firm needs to import military boots from the Republic of Ukraine. Given the exchange rate information below and using the concept of cross rates, compute how much the Ghanaian firm will need to pay in cedis to import boots worth two million Ukraine hryvnia (2,000,000 Ukraine hryvnia). 4.26n Ukrainian hryvnia = UK£1.000 29.59 Ukrainian hryvnia = EUR €1.000 €0.2201207 = GHS1.000
Entrepreneurial Finance
ISBN: 978-0538478151
4th edition
Authors: J . chris leach, Ronald w. melicher