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Foreign Exchange Rates

Hilton International is considering investing in a new Swiss hotel.

1. Hilton International is considering investing in a new Swiss hotel. The required initial investment is $1.5 million (or SFr 2.38 million at the current exchange rate of $0.63 = SFr 1). Profits for the first ten years will be reinvested, at which time Hilton will sell out to its partner. Based on projected earnings, Hilton's s

Suppose today's exchange rate is $0.62/Euro.

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 a

Tokyo Disneyland

1. In May 1988, Walt Disney Productions sold to Japanese investors a 20‑year stream of projected yen royalties from Tokyo Disneyland. The present value of that stream of royalties, discounted at 6% (the return required by the Japanese investors), was ¥93 billion. Disney took the yen proceeds from the sale, converted them

Foreign Exchange Markets Summary

Consider the following scenario: You have been asked by a local college to write a lecture that explains the gold standard and addresses the functions of the world's major foreign exchange markets. Write a 1050-to 1400-word summary detailing the functions of the world's major foreign currency exchange markets. Be sure to discuss

Parity Relationships and Arbitrage

9. You are an expatriate working for Bank America in Hong Kong, and observe the following prices. Formulate an arbitrage strategy to profit from the situation. ? Swiss Franc per Dollar exchange rate is 1.30 spot and 1.35 for 180-day forward. ? Swiss interest rate is 6.00% compounded daily. ? U.S. stock market index is 1500

Assessing Economic Exposure

Alaska, Inc., plans to create and finance a subsidiary in Mexico that produces computer components at a low cost and export them to other countries. It has no other international business. The subsidiary will produce computers and export them to Caribbean islands and will invoice the products in US dollars. The value of the curr

International Finance

10. Forecasting with a Forward Rate. Assume that the four-year annualized interest rate in the United States is 9 percent and the fouryear annualized interest rate in Singapore is 6 percent. Assume interest rate parity holds for a four-year horizon. Assume that the spot rate of the Singapore dollar is $.60. If the forward rate

International Finance: Foreign Exchange Rates

17. Forecasting Based on PPP versus the Forward Rate. You believe that the Singapore dollar's exchange rate movements are mostly attributed to purchasing power parity. Today, the nominal annual interest rate in Singapore is 18%. The nominal annual interest rate in the U.S. is 3%. You expect that annual inflation will be about 4%

Swap Market and Currency Problem

1. At present, LIBOR3 is 7.93% and LIBOR6 is 8.11%. What is the forward rate for a LIBOR3 deposit to be placed in three months? 2. Company A, a low-rated firm, desires a fixed-rate, long-term loan. A currently has access to floating interest rate funds at a margin of 1.5% over LIBOR. Its direct borrowing cost is 13% in t

Using PPP/IFE to Determine Exchange Rates

An international pension fund manager uses the concepts of purchasing power parity (PPP) and the international fisher effect (IFE) to forecast spot exchange rates. The pension manager gathers the financial information as follows. Base Price Level 100 Current U.S. Price Level 105 Current South African Price Level 111 Base Ran

Exchange Rates: Example

1. Suppose the price of gold is 155 marks. a) If the dollar price of gold is $100 per ounce, what should you expect the dollar price of a mark to be? b) If it actually only costs $0.60 to purchase one mark, how could one make arbitrage profits? 2. Fill in the missing exchange rates in the following table: US dollar

IFE Application to Asian Crisis

Please help with the following problem. Before the Asian crisis, many investors attempted to capitalize on the high interest rates prevailing in the Southeast Asian countries although the level of interest rates primarily reflected expectations of inflation. Explain why investors behaved in this manner. Why does the IFE s

Inflation and Interest Rate Effects

The opening of Russia's market has resulted in a highly volatile Russian currency (the ruble). Russia's inflation has commonly exceeded 20 percent per month. Russian interest rates commonly exceed 150 percent, but this is sometimes less than the annual inflation rate in Russia. a. Explain why the high Russian inflation has pu

Spot rate

1. Assume that the spot exchange rate of the British pound is $1.73. How will this spot rate adjust according to PPP if the United Kingdom experiences an inflation rate of 7 percent while the United States experiences an inflation rate of 2 percent? 2. Assume that the spot exchange rate of the Singapore dollar is

Covered Interest Arbitrage in Both Directions

Covered Interest for New Zealand (NZs) and US dollars. The one-year interest rate in New Zealand is 6%. The one-year interest rate in US is 10% The spot rate of the New Zealand dollar (NZs) is $.50 The forward rate of the New Zealand dollar is $.54 Is covered interest arbitrage feasible for U

Foreign Exchange Derivatives

Managers in multinational corporations use derivatives to hedge their exposure to currency risk. Therefore, they must understand different forms of currency derivatives and how the derivatives markets work. How foreign exchange derivatives markets work. Explain the role of derivatives in hedging the foreign currency risk.

Exchange Rates and the Time Value of Money

39. The exchange rate between the pound sterling and the dollar is currently $1.50 per pound, the dollar interest rate is 7% per year, and the pound interest rate is 9% per year. You have $100,000 in a one-year account that allows you to choose between either currency, and it pays the corresponding interest rate. a. If you ex

Speculating on Anticipated Exchange Rates

Citi Bank expects that the Singapore dollar will depreciate against the dollar from its spot rate of $.43 to $.42 in 60 days. The following interbank lending and borrowing rates exist: Currency Lending Rate Borrowing Rate US Dollar 7.0% 7.2% Singapore 22.0%

International Finance - Fresh Juices, Inc

Scenario: As a senior financial analyst for Fresh Juices, Inc., the largest fresh fruit drink company in the United States, you are a key player in corporate finance for the business. You are consulted on major capital projects, prepare analysis for executive officers, present material at senior management meetings, and pla