PROBLEM #1 Assume you have $1,000,000 that you can invest for the next 180 days. Using only
Question:
PROBLEM #1
Assume you have $1,000,000 that you can invest for the next 180 days. Using only the data given below, answer the following questions. (a and b).
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Spot rate: Yen 200 per U.S. Dollar
180 day forward rate: Yen 210 per U.S. Dollar
Your forecast of the spot rate
In 180 days: Yen 190 per U.S. dollar
U.S. interest rate (annual): 10%
Japanese interest rate (annual): 10%
a.) 10 Points
In which country would you invest your $1,000,000 if you decided to use the forward market? What total amount (in dollars) would you obtain at the end of 180 days? Show the necessary calculations.
b.) 10 Points
In which country would you invest your $1,000,000 if you are 100% certain that your forecast will come true? What total amount (in dollars) would you obtain at the end of 180 days.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill