Hedge through covered interest arbitrage
Course:- Financial Management
Reference No.:- EM13942981

Assignment Help >> Financial Management

You are expecting to receive 10M Euros 3-months from now. The interest rates are 3% in the US and 5% in Germany. Current spot exchange rate: $1.20/Euro and 3-month Forward rates: $1.15/Euro.

a. How much $ will you have 3-months from now if you hedge through covered interest arbitrage?

b. How much will you have if you hedge through forward contract?

Put your comment

Ask Question & Get Answers from Experts
Browse some more (Financial Management) Materials
The Wall Street Journal reports that the current rate on 10-year Treasury bonds is 7.55 percent, on 20-year Treasury bonds is 8.15 percent, and on a 20-year corporate bond iss
Your purchase 8 put option contracts on JCS Stock with a strike price of $90. The option premium is 35 cents per share. Ignoring commission and other transaction costs, if the
The total book value of the firm’s equity is $12 million; book value per share is $24. The stock sells for a price of $45 per share, and the cost of equity is 15%. The firm’s
Suppose that the Fed buys $1 million of bonds from the First National Bank. If the First National Bank and all other banks use the resulting increase in reserves to purchase s
Suppose you deposit $8,000 in 3 years, $3,000 in 6 years, and $9,000 in 8 years. How much will you have in your account after 8 years if the account earns 3% compounded annual
First National Bank has a credit card department. The average cardholder charges $600 a month, and pays off the entire balance 60 days after the purchase. The cardholders do n
A French exporter of wine to the United States will receive $377 287 in 90 days. The exporter has collected the following information: Spot exchange rate today: €/$ 0.91167 90
With any hedge Your losses on one side should about equal your gains on the other side You should try to make money on both sides of the transaction: that way you make money c