International Economics
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Dominick-Salvatore-International-Economics
(a)
Identify the forces at work that will make the cross exchange rates consistent in currency arbi- trage in the previous problem. (b) What are the consistent cross-rates in Prob- lem 3? *5. Calculate the forward discount or premium for the following spot and three-month forward rates: (a) SR = $2.00/£1 and FR = $2.01/£1 (b) SR = $2.00/£1 and FR = $1.96/£1 Salvatore c14.tex V2 - 10/18/2012 1:15 P.M. Page 459 A14.1 Derivation of the Formula for the Covered Interest Arbitrage Margin 459 6. Calculate the forward discount or premium for the following spot and three-month forward rates: (a) SR = SF2/ ¤ 1 and SF2.02/ ¤ 1 where SF is the Swiss franc and ¤ is the euro (b) SR = ¥200/$1 and FR = ¥190/$1 7. Assume that SR = $2/£1 and the three-month FR = $1.96/£1. How can an importer who will have to pay £10,000 in three months hedge the foreign exchange risk? 8. For the given in Problem 7, indicate how an exporter who expects to receive a payment of £1 million in three months hedges the foreign exchange risk. *9. Assume that the three month FR = $2.00/£1 and a speculator believes that the spot rate in three months will be SR = $2.05/£1. How can a person speculate in the forward market? How much will the speculator earn if he or she is correct? 10. If the speculator of Problem 9 believes that the spot rate in three months will be SR = $1.95/£1, how can he or she speculate in the forward mar- ket? How much will the speculator earn if he or she is correct? What will the result be if in three months SR = $2.05/£1 instead? *11. If the positive interest rate differential in favor of a foreign monetary center is 4 percent per year and the foreign currency is at a forward discount of 2 percent per year, roughly how much would an interest arbitrageur earn from the purchase of for- eign three-month treasury bills if he or she covered the foreign exchange risk? Download 7.1 Mb. Do'stlaringiz bilan baham: |
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