International Finance
Not what you're looking for?
15. Suppose today's exchange rate is $0.62/Euro. The 6-month interest rates on dollars and Euro are 6% and 3%, respectively. The 6-month forward rate is $0.6185. A foreign exchange advisory service has predicted that the Euro will appreciate to $0.64 within six months.
a. How would you use forward contracts to profit in the above situation?
b. How would you use money market instruments (borrowing and lending) to profit?
c. Which alternatives (forward contracts or money market instruments) would you prefer? Why?
Purchase this Solution
Solution Summary
This posting provides a detailed solution to the student's question.
Solution Preview
a. How would you use forward contracts to profit in the above situation?
ANSWER. By buying Euro forward for six months and selling it in the spot market, you can lock in an expected profit of $0.0215 (0.64 - 0.6185) per Euro bought forward. This is a semiannual percentage return of ...
Purchase this Solution
Free BrainMass Quizzes
Marketing Management Philosophies Quiz
A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
Six Sigma for Process Improvement
A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.