Business, 15.10.2020 09:01, renee9913

.) A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. The one-year interest rate in the U. S. is i$ = 5% and in the euro zone the one-year interest rate is i€ = 4%. The spot exchange rate is $1.25/€ and the one-year forward exchange rate is $1.40/€. a.) Show how to realize a certain profit via covered interest arbitrage. A) Borrow $1,000,000 at 2%. Trade $1,000,000 for €800,000; invest at i_€=6%; translate proceeds back at forward rate of $1.20 = €1.00, gross proceeds = $1,017,600

B) Borrow €800,000 at i_€=6%. translate to dollars at the spot, invest in the U. S at i_$=2% for one year; translate €848,000 back into euro at the forward rate of $1.20 = €1.00 Net profit $2400

C) Borrow €800,000 at i_€=6%. translate to dollars at the spot, invest in the U. S at i_$=2% for one year; translate €850,000 back into euro at the forward rate of $1.20 = €1.00 Net profit $2000

D) Both C and B.

Answers: 1

Show answers

Other questions on the subject: Business

Business, 21.06.2019 23:00, rosie20052019

Which of the following statements about the relationship between economic costs and accounting costs is true? multiple choice accounting costs are equal to or greater than economic costs. accounting costs must always equal economic costs. accounting costs are always greater than economic costs. accounting costs are always less than or equal to economic costs.

Answers: 2

continue

Business, 22.06.2019 12:30, cheyannehatton

Suppose that two firms produce differentiated products and compete in prices. as in class, the two firms are located at two ends of a line one mile apart. consumers are evenly distributed along the line. the firms have identical marginal cost, $60. firm b produces a product with value $110 to consumers. firm a (located at 0 on the unit line) produces a higher quality product with value $120 to consumers. the cost of travel are directly related to the distance a consumer travels to purchase a good. if a consumerhas to travel a mile to purchase a good, the incur a cost of $20. if they have to travel x fraction of a mile, they incur a cost of $20x. (a) write down the expressions for how much a consumer at location d would value the products sold by firms a and b, if they set prices p_{a} and p_{b} ? (b) based on your expressions in (a), how much will be demanded from each firm if prices p_{a} and p_{b} are set? (c) what are the nash equilibrium prices?

Answers: 3

continue

Business, 22.06.2019 16:30, piratesfc02

Suppose that electricity producers create a negative externality equal to $5 per unit. further suppose that the government imposes a $5 per-unit tax on the producers. what is the relationship between the after-tax equilibrium quantity and the socially optimal quantity of electricity to be produced?

Answers: 2

continue

Business, 22.06.2019 19:20, kristen17diaz

Garrett is an executive vice president at samm hardware. he researches a proposal by a larger company, maximum hardware, to combine the two companies. by analyzing past performance, conducting focus groups, and interviewing maximum employees, garrett concludes that maximum has poor profit margins, sells shoddy merchandise, and treats customers poorly. what actions should garrett and samm hardware take? a. turn down the acquisition offer and prepare to resist a hostile takeover. b. attempt a friendly merger and use managerial hubris to improve results at maximum. c. welcome the acquisition and use knowledge transfer to impart sam hardware's management practices. d. do nothing; the two companies cannot combine without samm hardware's explicit consent.

Answers: 1

continue

Do you know the correct answer?

.) A currency dealer has good credit and can borrow either $1,000,000 or €800,000 for one year. The...