You have $1.000.000 to invest. You have 2 choices: bonds issued by the US Government in US dollars, which will pay a fixed 7% coupon per year or bonds issued by the Russian Government in US dollars, paying 8% coupon. What would you chose? Why? highes water bu
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- The next problem is about covered interest rate parity. Assume that the home country is the Philippines, and a Filipino investor is mulling whether or not to invest P1 million in the US or in the PH. Bonds in either country mature in just 1 year. The initial parameters are as follows: iPH ius = = 8% ● et+1 = 12% • et P50/USD = P55/USD Answer the following: • If the Filipino invests in a PH bond for 1 year, how much will she earn? • If the Filipino invests in a US bond for 1 year, how much will she earn in peso terms? • Is there a difference between the two values above? • How much did the peso depreciate/appreciate from time t to t + 1? • For the investor to be indifferent between investing here and abroad, she should engage in a forward exchange rate contract at what rate Fț?If the spot rate is $0.50/NZ$ and the forward rate is $0.55/NZ$. The interest rate in USA is 9% and the interest rate in New Zealand is 4%. What would be per dollar benefit for the US investor from investing in New Zealand bonds? a. $0.054 b. -$ 0.054 c. $0.090 d. $ 0.040Suppose vou are a UK-based investor and the interest rate on investments in UK is 0.85% pa. and the interest rate for comparable investments in USTis 1.35% p.a. Suppose further that the spot rate is GBP 0.7267 /USD and that the quoted one-year forward rate by the bank is GBP 0.7195 /USDa.) If covered interest rate holds, Is there an arbitrage opportunity? Why?b.) If yes, how high is it if you were able to borrow USD twenty million at the above rates from a US bank for one year? Please state the gain in USD.
- If the spot rate is $0.50/NZ$ and the formate rate is $0.55/NZ$. The intreste rate in USA is 9% and the intreste rate in New Zealand is 4%. What would be per doller benefit for the US investor from Investing in New Zealand bonds. A. $0.054 B. -$0.054 C. $0.090 D. $0.040You are the financial manager for Belltower Associates, which is headquartered in Australia. You have received the below spot and interest rates quotes from your bank: Bid Ask NZD 0.8298/AUD NZD 0.8340/AUD 4.50% 5.00% 0.90% 1.30% Spot exchange rate Interest rate for AUD Interest rate for NZD Suppose that Belltower Associates has a receivable in NZD in one year's time and they wish to engage in a hedge to lock in their domestic (i.e. Australian dollar) currency equivalent of its value. Belltower Associates intends to achieve this by using their bank's spot rates and money market interest rates in order to create a synthetic forward contract. What is the effective forward exchange rate that Belltower Associates is able to achieve for hedging the AUD value of their NZD receivable? O a. NZD 0.8012/AUD O b. NZD 0.8635/AUD O c. O d. O e. NZD 0.8298/AUD NZD 0.8594/AUD NZD 0.7974/AUD NZD 0.8085/AUDAssume the following information: Spot rate of £ = $1.60 180-day forward rate of £ = $1.56 180-day British interest rate = 4% a. Based on this information, is covered interest arbitrage by US investors is possible (assuming that U.S. investors have $1,000,000)? If yes, Explain how to conduct it in your words. b. Suppose: 180-day US interest rate = 3%. Is the above strategy is feasible? Explain your %3D answer
- You are an investor currently holding 1.5 million U.S. dollars, and you are contemplating the following strategy. A)Investing in the U.S. 5-year treasury bonds. 1.Find the most profitable strategy. Calculate the future and present values of all strategies. Pls help!You have the following financial market information. You also have 1.34 million Australian dollar (A$) or 3.91 million Thai baht (THB) to make a profit due to covered interest arbitrage (CIA). Calculate the profit in A$ or THB if the CIA opportunity exists in the market. (enter the whole number without sign and symbol) THB spot rate THB one-year forward rate A$ spot rate A$ one-year forward rate Interest rate on A$ Interest rate on THB Bid price A$0.0408 A$0.0491 THB22.0891 THB27.5141 Deposit rate 2.28% 6.88% Ask price A$0.0606 A$0.0663 THB24.4134 THB29.8197 Loan rate 4.46% 8.77% Answer:Suppose the interest rate on investments in GBP is 12% in London and the interest rate for comparable investments in USD in New York is 7%. Suppose further, that the spot rate is USD 1.95 /GBP and that the one-year forward rate is USD 1.87 /GBP a) Is the covered interest parity violated? Is there an arbitrage opportunity? b) If yes, how high is it if you were able to borrow USD 1 million from a US-based bank?
- 1) You are given the following information: r* = 1.0% ● ● ● The current interest rate on a 1 year loan to the U.S. government = 3.0% The MRP on 10 year bonds = 0.75% The LP on U.S. and Zeniba Inc. bonds = 0 The interest rate on a 10 year loan to Zeniba Inc. is 1.5 times the rate on a 10 year loan to the U.S. government a) What is the inflation rate expected to be over the next year? b) Suppose the average annual inflation rate expected each year over the next 10 years is the same as the inflation rate expected over the next year. What should be the current interest rate on a 10 year loan to the U.S. government? c) What is the DRP on a 10 year loan to Zeniba Inc.? How longIs it profitable for a US bank to issue $200 million of one-year bonds in the US at 6.5% to invest it in one-year Brazilian government bond paying an annual interest rate of 8%, if current spot rate is 1.0537 BRL/USD and expected spot rate in a year from now is 0.9875 BRL/ USD? Does it make sense to use forward contract?If the interest rate is 7 percent on euro-denominated assets and 5 percent on dollar-denominated assets, and if the dollar is expected to appreciate at a 4 percent rate against euro, for Francois the Frenchman the expected rate of return on dollar-denominated assets is %. Question 2 options: