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Should the discount rate be affected by the change in political conditions?
Describe the uncertainty that surrounds the estimate of future cash flows from the perspective of the U.S. parent.
You have $100,000. Estimate your profit or loss if you were to attempt triangular arbitrage by converting your dollars to Australian dollars.
Assume that interest rate parity exists and that the annual risk-free interest rate in the United States, Australia, and Mexico is 7 percent.
Based on the information, do you think the 1-month forward rate of the euro exhibited a discount or premium this morning?
As investors engage in triangular arbitrage, explain the effect on each of the exchange rates until triangular arbitrage would no longer be possible.
Explain the forces that caused the forward rate of the Australian dollar to change.
Assume that the one-year interest rate in the U.K. is 9 percent, while the one-year interest in the U.S is 4%. The spot rate of the pound is $1.50
Does the forward rate quoted today for the Australian dollar exhibit a premium, or a discount, or does your answer vary with specific conditions?
Explain how the British annual interest rate changed over the month, and whether it is higher, lower, or equal to the U.S. rate at the end of the month.
Do you think Logan will be able to find a bank that provides him with a more favorable spot rate than his local bank? Explain.
What additional factors that normally are not relevant for a purely domestic project deserve consideration in multinational capital budgeting?
Examine two (2) efforts at health reform in the United States that occurred during the 1900s. Determine the major political and social factors
Assume that Mexico's economy has expanded significantly, causing a high demand for loanable funds there by local firms.
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.
Why are transaction costs, currency restrictions, and differential tax laws important when evaluating whether covered interest arbitrage can be beneficial?
Explain how the relationship between the U.S. interest rate and the Canadian interest rate changed from the beginning of the month until the end of the month.
The interest rate in Indonesia is commonly higher than the interest rate in the United States, which reflects a high expected rate of inflation there.
How will your expected dollar amount of receivables from the Japanese transaction be affected (if at all) by the news that occurred this afternoon? Explain.
Can a U.S. firm benefit from investing funds in Singapore using covered interest arbitrage?
Explain how the forward premium or discount is expected to change by December.
If so, explain the steps that would reflect triangular arbitrage, and compute the profit from this strategy.
What market forces would occur to eliminate any further possibilities of covered interest arbitrage?
If interest rate parity exists, then the return for British investors who use covered interest arbitrage will be the same as the return for British investors.
If U.S. interest rates decrease, how must this premium change to maintain interest rate parity? Why might we expect the premium to change?