Suppose that California Co., a U. S. based MNC, seeks to capitalize a difference in interest rates between euros and British pounds via the use of a carry trade. In particular, after 1 month, funds invested in euros will yield a 0.50% percent return, while funds invested in pounds will yield a return of 2.00% percent. Currently the spot rate of the British pound is 51.00 while the spot rate of the euro is $0.80. In other words, the pound is worth 1.25 euros. California Co. expects these spot rates to remain constant over the next month.
The previous scenario assumed that the spot rates of the pound and the euro remained constant. However, there is a risk that the exchange rates change. Suppose that the euro appreciates over the course of the month, such that the cross exchange rate is now 0.78125 euros per pound. Assume the spot rate for the pound remains constant at $1.00 per pound.
Under this new cross exchange rate of 0.78125, the 603,000 euros that California Co. needs to repay is equivalent to pounds. Thus, after repaying the loan, California Co. will have pounds from the 693,600 pounds they received from the initial investments. These pounds are equivalent to -$78,240.00, and represents a profit of $ over the initial $200,000 that California Co. used from their own funds.
Answers: 2
Business, 22.06.2019 04:40, aidanfbussiness
Select the correct answerwhat is the responsibility of each of the twelve federal reserve's banks in their districts? a. they set the prime rateob. they monitor functioning of banks in their through onsite and offsite reviewsc. they assess taxes in their destnictd. they write fiscal policies
Answers: 1
Business, 22.06.2019 20:20, gbrightwell
Reynolds corp. factors $400,000 of accounts receivable with mateer finance corporation on a without recourse basis on july 1, 2015. the receivables records are transferred to mateer finance, which will receive the collections. mateer finance assesses a finance charge of 1 ½ percent of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. the transaction is to be recorded as a sale. required: a. prepare the journal entry on july 1, 2015, for reynolds corp. to record the sale of receivables without recourse. b. prepare the journal entry on july 1, 2015, for mateer finance corporation to record the purchase of receivables without recourse— think through this. c. explain the difference between sale of receivables with recourse as oppose to without recourse.
Answers: 2
Business, 22.06.2019 21:40, QueenNerdy889
Which of the following comes after a period of recession in the business cycle? a. stagflation b. a drought c. a boom d. recovery
Answers: 1
Suppose that California Co., a U. S. based MNC, seeks to capitalize a difference in interest rates b...
English, 06.05.2020 21:27
Social Studies, 06.05.2020 21:27
Biology, 06.05.2020 21:27