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bearhunter [10]
3 years ago
14

.) 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 th

e 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.
Business
1 answer:
d1i1m1o1n [39]3 years ago
7 0

Answer:

The question does not fit the options, since the options all refer to a 2% interest rate in US dollars and a 6% interest rate in euros. While the question states that the interest rate in US dollars is 5% and the interest rate in euros is 4%.

The answer to the question is:

If you borrow $1,000,000 today, you will be able to purchase 800,000€. Or if you borrow 800,000€ today, you will be able to purchase $1,000,000.

Since the forward rate is higher, you should borrow dollars, invest in euros and after a year, purchase back dollars and pay back your debt.

Gain:

= 800,000€ x 1.04 = 832,000€ x 1.4 = $1,164,800, then you pay back your loan = $1,164,800 - ($1,000,000 x 1.05) = $1,164,800 - $1,050,000 = $114,800 gain

Options C will also yield gains:

option C = borrow 800,000€ and buy $1,000,000. After one year you will have $1,020,000 which you can use to purchase 850,000€. Your gain = 850,000€ - (800,000€ x 1.06) = 2,000€

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President obama announced a $100,000,000 humanitarian aid package to haiti to support its earthquake relief. england's parliamen
Julli [10]

Answer: The parliament is likely to allocate £ 1,23,93,800.62

We arrive at the answer as follows:

Amount allocated by President Obama    $100,000,000

Amount England wants to contribute        20% of President Obama's allocation

Amount England wants to contribute in USD  =

                                              0.2 * 100,000,000 = USD 2,00,00,000  

Exchange Rate                                      $1. 61371/1 pound sterling

We can read the problem as if $1.61371 is equal to 1 pound sterling, how many pound sterlings are equal to $2,00,00,000?

Let number of pound sterlings be x

So, \frac{1.61371}{1}= \frac{100000000}{x}

x = \frac{100000000}{1.61731}

x = 1,23,93,800.62


3 0
3 years ago
In 2000 Jenson Inc. issued bonds with an 8 percent coupon rate and a $1,000 face value. The bonds mature on March 1, 2025. If an
Vanyuwa [196]

Answer:

Yield to maturity is 6.6%

Explanation:

Yield to maturity is the annual rate of return that an investor receives if a bond bond is held until the maturity.

Face value = F = $1,000

Assuming Coupon payments are made annually

Coupon payment = $1,000 x 8% = $80

Selling price = P = $1,100

Number of payment = n = 13 years

Yield to maturity = [ C + ( F - P ) / n ] / [ (F + P ) / 2 ]

Yield to maturity = [ $80 + ( 1000 - 1100 ) / 13 ] / [ (1,000 + 1100 ) / 2 ]

Yield to maturity = [ $80 - 7.7 ] / 1100 = $72.3 /1100 = 0.066 = 6.6%

5 0
3 years ago
Seeking to obtain as high a financial return on their investments (ROI) as possible, firms will often set __________ goals
Llana [10]

Answer:

Profit

Explanation:

Profit goals is very essential in business in order to meet the set target. It is important to set a profit goals under to have a good returns for the business as well as the investors involved, it gives an insight to device the best strategy for great returns financially. theoretically, profit goals= summation of all sales / Units of sales

It should be noted that Seeking to obtain as high a financial return on their investments (ROI) as possible, firms will often set profit goals.

7 0
3 years ago
The following data relate to the operations of Slick Software, Inc., during 2018. Continuing operations:
Maurinko [17]

Answer:

A. $5.70

B. $7,625,000

C. $2.25

D. UNFAVORABLE amount of $4.25

Explanation:

a.Preparation of a condensed income statement for 2018,

SLICK SOFTWARE, INC.Condensed Income StatementFor the Year Ended December 31, 2018

Net sales $19,850,000

Costs and expenses $16,900,000

Income from continuing operations$2,950,000

Discontinued operations:

Operating income $140,000

Loss on disposal (net of income tax benefit)(550,000)

Income before extraordinary item $2,540,000 Extraordinary loss (net of income tax benefit)(900,000)

(550,000+350,000)

Net income$1,640,000

($2,540,000-900,000)

Earnings per share:

Earnings from continuing operations$12.25

[($2,950,000 - $500,000) ÷200,000]

Loss from discontinued operations (2.05)

($410,000 ÷ 200,000 shares)

Earnings before extraordinary items $10.20

[($2,540,000 - $500,000 preferred dividends) ÷ 200,000]

Extraordinary loss (4.50)

($900,000 ÷200,000 shares)

Net earnings $5.70

[($1,640,000 - $500,000 preferred dividends)÷200,000 shares]

Calculation for Preferred dividends:

Preferred dividends: 80,000 shares x $6.25 =$500,000

b.Preparation of a statement of retained earnings for the year ended December 31, 2018

SLICK SOFTWARE, INC.Statement of Retained Earnings For the Year Ended December 31, 2018

Retained earnings, December 31 2017 $7,285,000

Less: prior period adjustment350,000

Restated$6,935,000

Net income1,640,000

Subtotal$8,575,000

($6,935,000+1,640,000)

Cash dividends(950,000)

Retained earnings, December 31, 2017 $7,625,000

($8,575,000-$7,625,000)

c.Computation for the amount of cash dividend per share of common stock

Total cash dividends declared during 2018 $950,000

Less: Preferred stock dividend 500,000

(80,000 shares x $6.25 per share)

Cash dividends to common stockholders $450,000

Number of common shares outstanding 200,000

Cash dividend per common share $2.25

($450,000 ÷ 200,000 shares)

D. The amount of $8.00 earnings per share figure in 2019 will have unfavorable figure when compared with the year 2018 reason been that

the year 2019 has one Earnings Per Share amount which is why we should compared it to the earnings per share from continuing operations in year 2018, which gave us the amount of $12.25 per share[($2,950,000 - $500,000) ÷200,000] which inturn makes Slick Software, Inc.’s earnings per share from continuing operations to reduce to the amount of $4.25 per share ($12.25-$8.00) from the year 2018 to 2019

4 0
3 years ago
Why is brainly such a stupid app? Why did I have to get my email address? Why is my question not popping up? Where's the answer?
skelet666 [1.2K]

why are you so weaird

7 0
2 years ago
Read 2 more answers
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