1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
max2010maxim [7]
3 years ago
7

Carla Heinz is a portfolio manager for Deutsche Bank. She is considering two alternative investments of EUR10,000,000. Either sh

e will invest in euro deposits or she will invest in Swiss francs (CHF) for 90 days. In the latter case, she knows that she must worry about transaction foreign exchange risk, so she has decided to fully hedge her investment. Suppose she has the following data:180-day CHF interest rate, 8% p.a., 180-day EUR interest rate, 10% p.a., spot rate EUR1.1960/CHF, 180-day forward rate, EUR1.2024/CHF. Which of these deposits provides the higher euro return in 180 days? If these were actually market prices, what would you expect to happen?
Business
1 answer:
astraxan [27]3 years ago
6 0

Answer:

The euro return to investing directly in euros is 180 5% 10% 360   = ×  ÷   , so the euros available in 180 days is EUR10,000,000 × 1.05 = EUR10,500,000. Alternatively, the EUR10,000,000 can be converted into Swiss francs at the spot rate of EUR1.1960/CHF. The Swiss francs purchased would equal EUR10,000,000 / EUR1.1960/CHF = CHF8,361,204. This amount of Swiss francs can be invested to provide a 180 4% 8% 360   = ×  ÷   return over the next 180 days. Hence, interest plus principal on the Swiss francs is CHF8,361,204 × 1.04 = CHF8,695,652. If we sell this amount of Swiss francs forward for euros at the 180-day forward rate of EUR1.2024/CHF, we get a euro

Subscribe to unlock

return of CHF8,695,652 ×EUR1.2024/CHF = EUR10,455,652. This is less than the return from investing directly in euros.If these were the actual market prices, you should expect investors to do covered interest arbitrages. Investors would borrow Swiss francs, which would tend to drive the CHF interest rate up; they would sell the Swiss francs for euros in the spot foreign exchange market, which would tend to lower the spot rate of EUR/CHF; they would deposit euros.

Explanation:

You might be interested in
In communication, feedback is a
docker41 [41]
Feedback is when you give a person a thought of how they did something like if you read me a novel I would tell you what you need to improve and what I liked or disliked.
7 0
3 years ago
Read 2 more answers
The kenosha company has three product lines of beer mugslong dash​a, ​b, and clong dashwith contribution margins of $ 5​, $ 4​,
Tema [17]

Answer:

break even point in units:

  • a = 11,700
  • b = 46,800
  • c = 35,100

Explanation:

beer mugs          contribution margin         expected sales

a                                $5                                   25,000

b                                $4                                  100,000

c                                $3                                   50,000

fixed costs = $351,000

if the sales proportion remains the same, we can assume a bundle of products = 1a + 4b + 3c (1 for every 25,000 units) whose contribution margin = $5 + $16 + $9 = $30

break even point = fixed costs / bundle's contribution margin = $351,000 / $30 = 11,700 bundles

break even point in units:

a = 11,700

b = 11,700 x 4 = 46,800

c = 11,700 x 3 = 35,100

3 0
3 years ago
In the last few decades the car manufacturing sector has found it difficult to compete with foreign car imports. High labor cost
vladimir2022 [97]

Answer: c. It could allow real wages to downwardly adjust more easily.

Explanation:

When there is modest inflation, companies in the car manufacturing industry can simply decide not to increase nominal wages. This would lead to a fall in real wages as inflation would ensure that the nominal wages are less than they were worth before.

This decrease in real wages will allow the companies in the industry to reduce labor costs in real terms and become more competitive with the foreign manufacturers.

3 0
3 years ago
Shontelle received a gift of income-producing property with an adjusted basis of $49,000 to the donor and fair market value of $
Ugo [173]

Answer:

The recognized gain or loss is -$4000.

Explanation:

Gift property value = $49000

fair market value = $35000

realized loss = sale price - fair market value

                     = $31000 - $35000

                     = -$4000

Therefore, The recognized gain or loss is -$4000.

4 0
3 years ago
Protect provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job i
Alona [7]

Answer:

a. $500

b. $1,700

Explanation:

In the cash basis system of accounting, revenue is recognized once cash has been collected while under accrual basis, revenue is collected once it is earned irrespective of whether cash has been collected or not.

Expenses are recorded when cash is paid in the cash basis system while expenses are recorded once it is incurred under the accrual system of accounting.

Hence

Cash basis - revenue earned is $500 for the year

Accrual basis - revenue earned is $1700 ( the sum of the amount paid and owed by the customer).

3 0
3 years ago
Other questions:
  • Use the midpoint method to calculate the price elasticity of demand for potato chips that increased in price from $2.00 to $3.00
    15·1 answer
  • T
    5·1 answer
  • Pattison Corporation is a service company that measures its output by the number of customers served. The company has provided t
    11·1 answer
  • How will hiring you benefit our restaurant
    5·1 answer
  • Graham had developed an extremely successful advertising and promotion campaign for a client in the United States. The client wa
    14·1 answer
  • Stockholders of a company may be reluctant to finance expansion through issuing more equity because leveraging with debt is alwa
    11·1 answer
  • The board of directors declared cash dividends totaling $585,000 during the current year. The comparative balance sheet indicate
    13·1 answer
  • Kimble Company applies overhead on the basis of machine hours. Given the following data, compute overhead applied and the under-
    13·1 answer
  • On October 1, Company B records 1 year of prepaid rent in an income statement account then adjusts for the unexpired prepaid ren
    14·1 answer
  • For each activity, select the impact on the accounting equation. After doing all transactions, ensure that the accounting equati
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!