Foreign exchange exposure using the forward market

Assignment Help Financial Management
Reference no: EM131915029

A bank purchases a six-month $2 million Eurodollar deposit at an interest rate of 7.4 percent per year. It invests the funds in a six-month Swedish krona bond paying 8.0 percent per year. The current spot rate of U.S. dollars for Swedish krona is $0.1790/SKr.

a. The six-month forward rate on the Swedish krona is being quoted at $0.1810/SKr. What is the net spread earned for six months on this investment if the bank covers its foreign exchange exposure using the forward market? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))

  Net spread %  

b. At what forward rate will the spread be only 1 percent per year? (Do not round intermediate calculations. Round your answer to 4 decimal places. (e.g., 32.1616))

  Forward rate $  per SKr

Reference no: EM131915029

Questions Cloud

Use gradient method for calculating present value of costs : At an interest rate of 7%, what is the net savings per dollar invested? Use gradient method for calculating the present value of costs.
Assume the margin is expressed as markup based on cost : Assume the margin is expressed as a markup based on cost. Compute your answer to the nearest penny.
What is market-to-book ratio-dividends per share : What are earnings per share? What are dividends per share? what is the market-to-book ratio?
Calculate the npv and irr based on weighted average cost : Calculate the NPV and IRR based on weighted average cost of capital method,
Foreign exchange exposure using the forward market : What is the net spread earned for six months on this investment if the bank covers its foreign exchange exposure using the forward market?
Exposure against rising interest rates : How many put option contracts should the FI purchase to hedge its exposure against rising interest rates?
What is the company net income and company roa : What is the company's net income? What is the company's ROA?
What is the quick ratio-what is the current ratio : What is the current ratio? What is the quick ratio?
Plot trends in the firm ratios again the industry averages : Calculate the key financial ratios for Seal-Best, Inc. and plot trends in the firm's ratios agains the industry averages.

Reviews

Write a Review

Financial Management Questions & Answers

  Determine the monthly payment required to amortize

Determine the monthly payment required to amortize a $750, 000 mortgage over a 25 year period if you put a 20% down payment on your home,

  Which policies are unique to the financial environment

Describe the financial structure. Which policies are unique to the financial environment? Which financial management practices are prevalent in the financial environment? Explain why effective financial management is more difficult in health care tha..

  What is the current value of a share of efg stock

EFG Inc. reported EBIT of 8.5 million for last year. Depreciation expense totaled 5 million and capital expenditures came to 2.5 million. Free cash flow is expected to grow at a rate of 2.5% for the foreseeable future. EFG's equity beta is 1.25, the ..

  Bank sources of funds cost on average libor

The Bank of Orlando has large holding of 8% fixed-rate loans. The bank’s sources of funds cost on average LIBOR - 1%. If LIBOR is currently at 5%, what spread is the bank earning? Assuming the bank decides to enter into an interest rate swap that all..

  Describe a characteristic of defined benefit plan

Which one of the following statements does not correctly describe a characteristic of a defined benefit plan?

  Based on these preliminary project estimates

Based on these preliminary project estimates, what is the NPV of the project?

  Firm decides to recapitalize to take advantage of tax shield

Crown Inc. is a pure equity firm. Firm decides to recapitalize to take advantage of tax shield.

  Decides to undertake capital expansion financed by new debt

A firm with a normalized pretax income of $40 million, 25% tax rate, and a Total Debt/Total Capital ratio of 30%, decides to undertake a capital expansion financed by new debt. How would your answer change if the debt was unsecured? Specifically, wha..

  What is the value of bond

The par value of the bond is $1,000. If the going annual interest rate is 7.2%, what is the value of the bond?

  Each month into your retirement fund

The company you work for will deposit $150 at the end of each month into your retirement fund.

  What is the amount of that initial withdrawal

Suppose you are now retired and expect to live for 20 years. If the first withdrawal is to be made today, what is the amount of that initial withdrawal?

  Successful brand with the name top goal

Creative Solutions, Inc. has a successful brand with the name Top Goal. The market size in which Top Goal competes is $2 billion, and Top Goal has generated sales of $150 million. It has a contribution margin of 30%. Both brands (Top Goal and Peak Go..

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