FINANCE

posted by .

Answer both questions

A).The treasurer of a German firm has €5 million to invest for three months. The annual interest rate in the Germany is 4 percent: the interest rate in the United Kingdom is 2 percent. The spot rate of exchange is €1.1/£ and the three-month forward rate is €1.2/£. Ignoring transactions costs, in which country would the treasurer want to invest the company’s capital using the forward market? Explain your answer.

B)Suppose the spot rate of exchange between Germany and the UK at time t is $1.50/£. If the interest rate in the US is 13 percent and it is 8 percent in the UK, what would you expect the one-year forward rate to be if no immediate arbitrage opportunities exist?

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. Finance

    A bank offers your firm a revolving credit arrangement for up to $85 million at an interest rate of 2.5 percent per quarter. The bank also requires you to maintain a compensating balance of 4 percent against the unused portion of the …
  2. eco

    Suppose a person pays $80 of annual interest on a loan that has a 5 percent annual interest rate. The loan amount is: A. $400. B. $1,600. C. $160. D. $85. 10. Suppose a loan customer is considering two alternative $22,000 loans. Loan …
  3. Finance 200

    The treasurer for Thornton Pipe and Steel Company wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $105,000 per contract. It is July and the contracts must be closed …
  4. finance

    14. Assume Julian has a choice between two deposit accounts. Account A has an annual percentage rate of 7.55 percent but with interest compounded monthly. Account B has an annual percentage rate of 7.45 percent with interest compounded …
  5. bookkeeping

    what is the july interest ?total purchase is $15,632.16 with a %10 interest rate for 10 months 86.85 88.25 89.93 91.92 my answer is 89.93 what is the first months interest for the following $7659.43 at an interest rate of %11 percent
  6. Finance

    Find the future value of $10,000 invested now after five years if the annual interest rate is 8 percent. a. What would be the future value if the interest rate is a simple interest rate?
  7. Finance

    A Treasury note with a maturity of four years carries a nominal rate of interest of 10 percent. In contrast, an eight-year Treasury bond has a yield of 8 percent. a. If inflation is expected to average 7 percent over the first four …
  8. Finance

    Given her evaluation of current economic conditions, Ima Nutt believes there is a 20 percent probability of recession, a 50 percent chance of continued steady growth, and a 30 percent probability of inflationary growth. For each possibility, …
  9. FINANCE

    5. Forecasting Interest Rates Assume the current interest rate on a one-year Treasury bond (1R1) is 5.00 percent, the current rate on a two-year Treasury bond (1R2) is 5.75 percent, and the current rate on a three-year Treasury bond …
  10. FINANCE

    7. Forecasting interest rates Assume the current interest rate on a one-year Treasury bond (1R1) is 5.50 percent, the current rate on a two-year Treasury bond (1R2) is 5.95 percent, and the current rate on a three-year Treasury bond …

More Similar Questions