Investor lose or gain if exchange rate at end of contract

Assignment Help Financial Management
Reference no: EM13890121

(a) An investor enters into a short forward contract on 100 million yen. The forward exchange rate for US$ 1 is set at US$0.012 per yen. How much does the investor lose or gain if the exchange rate at the end of the contract is (i) US$0.011 per yen, and (ii) US$0.013 per yen.

(b) Suppose that the six-month interest rates in the United States and Japan are 5% and 1% per year, respectively. The spot exchange rate is 100yen/US$. Find the six-month forward exchange rate.

(c) Suppose that an I-bank is offering the exact same forward as (b) but with a rate strictly lower than the rate that you found in (b). Find an arbitrage implementation to capitalize on the arbitrage opportunity for a long position of the forward.

Reference no: EM13890121

Questions Cloud

Considering refinancing my house : I have been considering refinancing my house. To do so, I will need to borrow $250,000. The loan period is 30 years and payments are made monthly. Several months ago I could have gotten a loan at 3% APR, but today the APR is 5.25%. How much additiona..
What is annual rate of interest with continuous compounding : Find the present value for a payment of $10; 000 to be received in 3,5 years, if the annual interest rate is 4% that: (i) compounded monthly; (ii) compounded continuously. What is the annual rate of interest with continuous compounding is equal to 10..
Compute its current yield to maturity if the bonds price : Assume that you have just purchased a 3-year bond that is red empted at par with face value $1,000 and pays coupons semi-annually with annual rate 8%. If the bond is currently trading at a yield of 6%. Compute Its current price. Its current yield to ..
Complete the proof of no arbitrage lemma for equality cases : Complete the proof of the “no arbitrage lemma” for the equality cases. We know for the put-call-parity that an European call is equivalent to an European put plus a future that have the same strike price and maturity assuming the underlying stock pay..
Investor lose or gain if exchange rate at end of contract : An investor enters into a short forward contract on 100 million yen. The forward exchange rate for US$ 1 is set at US$0.012 per yen. How much does the investor lose or gain if the exchange rate at the end of the contract is (i) US$0.011 per yen, and ..
When the underlying stock pays dividends : When the underlying stock pays dividends, exhibit a scenario in which early exercising an American call could be more beneficial than holding it till expiry. Even though the underlying stock pays no dividend and the riskless rate is positive, exhibit..
The value of the dividend that investors expect corporation : The value of the dividend that investors expect corporation B to pay one year from today is $10. Given that corporations A and B have exactly the same risk and both have a current stock price of $100. We can assume that the before-dividend stock pric..
Read the focus on ethics box : Read the Focus on Ethics box (“Psst! Have You Heard Any Good Quarterly Earnings Forecasts Lately?”). Explain what quarterly earnings guidance is, and what purpose it is supposed to serve. If you were a corporate CEO, would you discontinue this practi..
Generate the most accurate value estimates for most firms : Several stock valuation models were described in the chapter, including zero-growth, constant growth, variable growth, free cash flow, book value, and P/E multiple models. Which of these do you believe would generate the most accurate value estimates..

Reviews

Write a Review

Financial Management Questions & Answers

  Impact of sub cultural elements such income-social class

What is the impact of sub cultural elements such as income, social class, religion, ethnicity, gender, and age on consumer buying? How do these affect consumer shopping behavior? What sub cultural elements best influence online versus mall shopping p..

  What is the new divisor for the price-weighted index

Able, Baker, and Charlie are the only three stocks in an index. The stocks sell for $36, $312, and $82, respectively. If Baker undergoes a 3-for-2 stock split, what is the new divisor for the price-weighted index?

  What was the annual increase in selling price

Assume the in January 2013, the average house price in a particular area was $279,400. In January 2002, the average price was $196,300. What was the annual increase in selling price?

  The investors geometric average return

An investor bought stock in a company for $10,000. Five years later, the investment (including reinvested dividends) was worth $8,000. The investor's geometric average return was:

  What is the monthly repayment on this loan

You and your spouse are planning on buying a $200,000 house. Your bank is willing to give you a 30 year mortgage loan at 6.12% APR with monthly repayments. What is the monthly repayment on this loan?

  Assume the interest rate

Meghan has accepted a job offer from a large bank as the new CEO. Her base salary will be $200,000 one year from today and it expected to increase by 5% each year. She is also promised a one-time check of $150,000 today for joining the bank. If she w..

  Statements concerning qualified target-benefit pension plans

All of the following statements comparing a profit-sharing plan to a pension plan are correct, EXCEPT: Which of the following statements concerning the basic provisions that are unique to ESOPs is (are) correct? All the following statements concernin..

  Note receivable-journal entries

Note receivable--journal entries-On September 1, 2015, Essex Transfer Corp sold equipment priced at $350,000 in exchange for a six-month note receivable with an annual interest rate of 12%, all due at maturity.

  What was the fund turnover

A mutual fund sold $36 million of assets during the year and purchased $32 million in assets. If the average daily assets of the fund were $96 million, what was the fund turnover?

  Desires sustainable growth rate

Boyd Crowder's Chowder, Inc. desires a sustainable growth rate of 3.8 percent while maintaining a 49 percent dividend payout ratio and a 4.9 percent profit margin. The company has a capital intensity ratio of 1.21. What equity multiplier is required ..

  What is total period cost for month under variable costing

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: What is the total period cost for the month under variable costing?

  Fixed costs-variable cost per unit-revenue per unit

Consider the following data: fixed costs = $10 million, variable cost per unit = $400, and revenue per unit = $1,200. For this organization, which of the following statements is most correct?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd