Questions from Financial Management

Q: Assume that the annual U.S. interest rate is currently

Assume that the annual U.S. interest rate is currently 8 percent and Germany’s annual interest rate is currently 9 percent. The euro’s one-year forward rate currently exhibits a discount of 2 percent....

Q: Assume the following information: / Given this information

Assume the following information: Given this information, is locational arbitrage possible? If so, explain the steps involved in locational arbitrage, and compute the profit from this arbitrage if yo...

Q: The South African rand has a one-year forward premium of

The South African rand has a one-year forward premium of 2 percent. One-year interest rates in the United States are 3 percentage points higher than in South Africa. Based on this information, is cove...

Q: Blades, Inc., has recently decided to expand its international trade

Blades, Inc., has recently decided to expand its international trade relationship by exporting its roller blades to the United Kingdom. Jogs, Ltd., a British retailer, has committed itself to the annu...

Q: Assume that annual interest rates in the United States are 4 percent

Assume that annual interest rates in the United States are 4 percent, whereas interest rates in France are 6 percent. a. According to IRP, what should the forward rate premium or discount of the euro...

Q: The following information is available: You have $500,

The following information is available: You have $500,000 to invest. The current spot rate of the Moroccan dirham is $0.110. The 60-day forward rate of the Moroccan dirham is $0.108 The 60-day intere...

Q: Assume that Mexico’s economy has expanded significantly, creating a high demand

Assume that Mexico’s economy has expanded significantly, creating a high demand for loanable funds there by local firms. How might these conditions affect the forward discount of the Mexican peso?

Q: Assume that the 30-day forward premium of the euro is

Assume that the 30-day forward premium of the euro is 1 percent, while the 90-day forward premium of the euro is 2 percent. Explain the likely interest rate conditions that would cause these premiums....

Q: Describe a method for testing whether interest rate parity exists. Why

Describe a method for testing whether interest rate parity exists. Why are transaction costs, currency restrictions, and differential tax laws important when evaluating whether covered interest arbitr...

Q: If the U.S. interest rate is close to zero

If the U.S. interest rate is close to zero, while the interest rate of Russia is very high, what would interest rate parity suggest about the forward rate of the Russian ruble? Explain.