Assume you are the treasurer of a multinational company based in UK and has just obtained...

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Assume you are the treasurer of a multinational company based in UK and has just obtained the following quotation: spot rate of for GBP per $1 USD is 0.8 where 1 USD is worth 0.8000 British Pound GBP/USD 12-month forward rate 0.8200 British Pound per USD if agree now but exchange 12 month later. (a) Show and calculate the fair value of 1-year GBP deposit rate if 1-year (4 marks) deposit rate of USD is 4%, according to the Interest Rate Parity theory. (b) Design an arbitrage trading strategy such that an arbitrage profit can be (10 marks) made if the deposit rate of 1-year GBP deposit is 10%. You may use 1 million USD as a base case to illustrate you answer and calculation. Assume you can deposit and borrow with the same rate as indicated for each currency. (4% for USD and 10% for GBP). (c) Design two strategies to offset the company's foreign exchange risk if the (8 marks) company is expecting to pay 10 million USD next year to a supplier. Assume the company has enough GBP in its current bank account. (d) Recently the price of an iPhone 13 Pro was increased in Japan from (8 marks) 98,800 yen to 117,800 yen, while the price of the same phone in the rest of the world remained unchanged. Explain and justify which theory of exchange rate parity is this phenomenon illustrating? What is the implied direction of the Japanese Yen (weakening, strengthening, or unchanged) versus other currency in the world based on this theory? Assume you are the treasurer of a multinational company based in UK and has just obtained the following quotation: spot rate of for GBP per $1 USD is 0.8 where 1 USD is worth 0.8000 British Pound GBP/USD 12-month forward rate 0.8200 British Pound per USD if agree now but exchange 12 month later. (a) Show and calculate the fair value of 1-year GBP deposit rate if 1-year (4 marks) deposit rate of USD is 4%, according to the Interest Rate Parity theory. (b) Design an arbitrage trading strategy such that an arbitrage profit can be (10 marks) made if the deposit rate of 1-year GBP deposit is 10%. You may use 1 million USD as a base case to illustrate you answer and calculation. Assume you can deposit and borrow with the same rate as indicated for each currency. (4% for USD and 10% for GBP). (c) Design two strategies to offset the company's foreign exchange risk if the (8 marks) company is expecting to pay 10 million USD next year to a supplier. Assume the company has enough GBP in its current bank account. (d) Recently the price of an iPhone 13 Pro was increased in Japan from (8 marks) 98,800 yen to 117,800 yen, while the price of the same phone in the rest of the world remained unchanged. Explain and justify which theory of exchange rate parity is this phenomenon illustrating? What is the implied direction of the Japanese Yen (weakening, strengthening, or unchanged) versus other currency in the world based on this theory?

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a According to the Interest Rate Parity theory the forward exchange rate should be determined based on the interest rate differential between two currencies In this case we have the following informat... View the full answer