Use what you need of the following set of information to answer questions 1 through 10:

S0 = $1.1138/ S0 = 0.7620/$ S0 = $1.3123/

E (S1 (3-months)) = $1.0840/ F3-months = $1.1580/

Where: = euro; = British pound; E( ) = Expected.

1. Is the $1.3123/ price given above a direct quote or indirect quote from the perspective of a British citizen?

Is the $1.1138/ price given above a direct quote or indirect quote from the perspective of a Eurozone citizen?

2. Is the euro expected to appreciate or depreciate in the coming three-month period against the U.S. dollar? Explain. Now, calculate the expected rate of appreciation or depreciation in the value of the euro over the coming three-month period. Answer in percent with four decimal places.

3. Do you think there is anything off or not right about the three-month forward rate given above for the euro? If yes, what is off or wrong with it?

4. If one year ago the spot price of British pounds in terms of the $ was $1.2420/. Do you think the dollar has appreciated or depreciated against the British pound over the last year? What was the percentage rate of change in the value of the dollar over the last year?

5. Look at the two British pound-dollar exchange rates given above. Are they consistent with one another? Show why or why not?

6. If you have 20,000,000 how many dollars would you be able to buy for immediate delivery given the above exchange rates? (Assume no bid/ask spread)

7. If you have $70,000,000 how many euros would you be able to buy for immediate delivery given the above exchange rates? (Assume no bid/ask spread)

8. If you have 120,000,000 how many dollars would you be able to buy for 3-month delivery given the above exchange rates? (Assume no bid/ask spread)

9. If a currency dealer wants to use the above three-month forward rate to quote the three-month euro as a percent premium or discount what rate would he quote?

10. If you want to know what the spot value of the euro is in terms of the British pound from the information given above, how would you find out?

11. A London dealer's current bid/ask quotes for the U.S. dollar are 0.7620/$ and 0.7880/$. If you, an MNC representative, want to buy $12,000,000 from that dealer, how many British pounds would you pay?

12. A London dealer's current bid/ask quotes for the U.S. dollar are 0.7620/$ and 0.7880/$. If you, an MNC representative, want to sell 16,000,000 to that dealer, how many dollars would you receive?

Answer rating: 100% (QA)

To determine the current market values of debt and equity for ABC and XYZ we can use the BlackSchole... View the full answer