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KF1.
Exquisite Jewelers has purchased 100 pounds of silver from Silver Mines Ltd. at US$8,000 per pound payable in one year. The current spot exchange rate is 1.6295 (C$/US$) and the one year forward rate, quoted by the company’s bank, is 1.6312. The Financial Controller at Fine Jewelers suggests that the spot rate in one year will be 1.6224. Interest rates in Canada are currently 3.9 percent for one year and 3.7 percent in the United States. Required:
a) Outline, with calculations, three alternative actions available to Golden Jewelers to handle its foreign exchange exposure.
b) Advise the company which alternative they should take, providing the reason for your recommendation
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- A UK company owes an American company $100,000 due to be paid in three months. The company wishes to avoid exchange rate risk, so borrows enough in sterling now and converts it immediately to dollars which are invested to bring in the required amount in three months' time. The following information is available: Spot rate $/£ 1.7755 - 1.7765 3-month interest rates: Sterling 3.250% US dollar 2.425% How much will the UK company have to borrow now to clear the debt in three months? A. £54,958 B. £54,989 £56,744 D. £56,775 C.A U.S. bank converted $1 million to Swiss francs to make a Swiss franc loan to a valued corporate customer when the exchange rate was 1.2 francs per dollar. The borrower agreed to repay the principal plus 6 percent interest in one year. The borrower repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate was 1.25 francs per dollar. What was the bank's dollar rate of return? 1.53% 1.76% 1.85% 2.01%A U.S. bank converted $1 million to Swiss francs to make a Swiss franc loan to a valued corporate customer when the exchange rate was 1.2 francs per dollar. The borrower agreed to repay the principal plus 6 percent interest in one year. The borrower repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate was 1.25 francs per dollar. What was the bank's dollar rate of return? 1.53% 1.76% 1.85% 2.01% On July 15, 2022, you convert 480,000 U.S. dollars to Japanese yen in the spot foreign exchange market at the spot rate of ¥104.91/$ and purchase a six-month forward contract to convert yen into dollars at the forward rate of $0.0095320/¥. How much will you receive in U.S. dollars at the end of six months? $497,668 $502,388 $458,773 $480,001
- XYZ Corporation, located in the United States, has an accounts payable obligation of ¥1500 million payable in six months to a bank in Tokyo. The current spot rate is ¥116/$1.00 and the six month forward rate is ¥109/$1.00. The annual interest rate is 3 percent in Japan and 6 percent in the United States. a) What is the future dollar cost of meeting this obligation using the money market hedge a. $92,307. b. $ 19582168.89 c. $13054779.26 d. $ 6589854.111A U.S. bank converted $1 million to Swiss francs to make a Swiss franc loan to a valued corporate customer when the exchange rate was 1.2 francs per dollar. The borrower agreed to repay the principle plus 5% interest in 1 year. The borrower repaid Swiss francs at loan maturity and when the loan was repaid the exchange rate was 1.3 francs per dollar. What was the bank's dollar rate of return? A. 26.00% B. -2.69% C. -3.08% D. 7.14%8. The CFO of Vaimato Industries needs to borrow money (a one year loan) in the coming months to support the start up of a new project. The interest rate in the U.S. for a dollar loan was quoted as 14 percent (before taxes). A euro loan is also available at an interest rate of 8.60 percent. In both cases the marginal tax rate is 40 percent. The spot exchange rate (American terms) is $1.2135/€ and the one - year forward rate is $1.2500/€. What is the after-tax cost of debt for the cheapest source of funds? a. 14.00% b. 13.87% c. 10.55% d. 8.40% e. 8.32%
- 29) XYZ bank of US expects the Swiss franc to appreciate against the dollar from its current spot rate of $.66467 to $.73114 in 60 days. The following rates are available in the interbank market. All rates are compounded daily on a 360 days /year basis. LENDING RATE 5.5 5.2 BORROWING RATE 6.0 5.8 U.S. Switzerland Assume that the bank has a borrowing capacity of either $10m or SF 15m in the interbank market. Estimate possible profits from this exercise. 0.66 4671 60Jack Ma, a foreign exchange trader in Canada, has CAD. 4,000,000 for short-term money market investment and wants to make a profit based on the following rates. Explain specific steps that Jack Ma must take to make a covered interest arbitrage. CAD= Canadian Dollar JYP= Japanese Yen 6-month Canadian interest rate 1.6% per annum 6-month Yen interest rate 2.95% per annum Spot rate JYP 93.1395/CAD 6-month forward rate JYP 93.8380/CADThe spot rate is $0.51/CAD1. Platinum Bank undertakes arbitrage transactions in CAD using a sum of $100 million. Annual interest rates are 9.8 per cent in Australia and 5.8 per cent in Canada. The bank can borrow or lend at these rates. What is the expected spread, if the forward rate is $0.55/CAD1? a. 2.5788% O b. 4.2980% c. None of the options is correct d. 3.6533% e. 5.5875%
- James Clark is a foreign exchange trader with Citibank. He notices the following quotes. Spot exchange rate Six-month forward exchange rate Six-month $ interest rate Six-month SFr interest rate USD1.2051/SFr USD1.1922/SFr 8% per year 10% per year Is there an arbitrage opportunity? If yes, determine the arbitrage profit in Swiss Francs. Assume that James Clark is authorized to work with $1,000,000. Input your answer without any currency information.Currently, the GBP/USD rate is 1.5011 and the six-month forward exchange rate is 1.5261. The six-month interest rate is 7.6% per annum in the U.S. and 5.7% per annum in the U.K. Assume that you can borrow £1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the foreign currency and invest locally? (USD, no cents)1. MSN Bank expects that the New Zealand dollar (NZD) will depreciate against the U.S. dollar (USD) from its spot rate of $.4525 to $.4225 in 120 days. The following interbank lending and borrowing rates exist: Annual borrowing rate Annual lending rate USD 7.20% 7.00% NZD 10.00% 9.00% MSN Bank considers borrowing 2 million New Zealand dollars in the interbank market and investing the funds in U.S. dollars for 120 days. Estimate the profits (or losses) that could be earned from this strategy. Should MSN Bank pursue this strategy? Show necessary calculations and discuss (50 words excluding calculations).