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
arsen [322]
3 years ago
15

A currency speculator expects the spot rate of British Pounds (GBP) to change from $2.00 to $2.20 in 6-months. Assume the specul

ator has access to credit lines of USD 20,000,000 in the US and GBP 10,000,000 in UK. The annual borrowing and lending rates are 6 percent in US and 4 percent in UK. In order for the speculator to take advantage from the expected spot rate change in GBP, it should
Business
1 answer:
Vedmedyk [2.9K]3 years ago
5 0

Answer:

Borrow in dollars then at spot rate convert money to british pound. Invest in the pounds for half a year and convert back to dollars.

Explanation:

Access to credit = $20000000

We do a conversion to pounds

= 20000000/2

= £10000000

When this is invested for 6 months

10000000 x 1 +4% x6/12

= 10000000(1+0.04*0.5)

= 10000000x1.02

= 10200000

We then make a conversion back to dollars

10200000 x 2.2

= 22,440,000 dollars

Loan to be repaid

20000000(1+6%x6/12)

= 20000000 x 1 +0.06*0.5

= 20000000 x 1.03

= 20,600,000

Then arbitrage profit = 22440000 - 20600000

= 1840000

You might be interested in
Redi- Cor is trying to compile information about transactions between customers. Which of the following is not a reason Redi- Co
Elodia [21]

Answer:

The transaction allows a seller to take pride in its product

Explanation:

Have a good one!

7 0
2 years ago
Read 2 more answers
If the rate of interest increases 1 percent, what will be the bond’s new price
trasher [3.6K]
Not enough information. need original interest and possibly bond type
4 0
3 years ago
What is the interest rate on a three-year investment with a future value of $1000 and a present value of $863.84?
Nimfa-mama [501]
Use
F=P(1+i)^n

Substituting 
F=1000, P=863.84, n=3
solve for i
1000=863.84^(1+i)^3
solving for i 
=> 
i=(\frac{1000}{863.84})^{\frac{1}{3}}-1
=0.0500

Answer: the annual interest rate is 5%
3 0
3 years ago
Use the following information to determine this company's cash flows from financing activities.
stira [4]

Answer:

The answer is ($183,000)

Explanation:

This section deals with cash flows used to fund(e.g borrowing and repayment of loans) the business

Statement of cash flow(Partial)

Issued common stock for cash----------------------------------------------------------$74,000

Paid cash dividend-------------- ($13,000)

Paid cash to settle a note payable -----------------------------------------------($125,000)

Paid cash to acquire its treasury stock----------------------------------------($119,000)

Net cash flow from financing activities-----------------------------------------($183,000)

6 0
3 years ago
Deadweight loss occurs when
dusya [7]

Answer:

d) the maximum level of total welfare is not achieved.

Explanation:

When the economic efficiency bears a loss, it is termed to be a deadweight loss. This condition occurs in the situation when the free market equilibrium is not able to be achieved. It occurs in the economy when the supply and the demand for the goods and services start to fall from being in the state of equilibrium. The resources allocated experiences a deficiency, thereby causing a deadweight loss.

3 0
3 years ago
Other questions:
  • Which branding strategy focuses on creating a credible green brand? multiple choice eco-branding environmental cost leadership s
    13·1 answer
  • g Handal Corporation uses activity-based costing to compute product margins. Overhead costs have already been allocated to the c
    8·1 answer
  • You want to invest in a stock that pays​ $2.00 annual cash dividends for the next four years. At the end of the four​ years, you
    13·1 answer
  • A builder has located a piece of property that she would like to buy and eventually build on. The land is currently zoned for fo
    13·1 answer
  • Which of these is not a major characteristic of a plant asset?
    9·1 answer
  • A ______ is a formal document that provides background and financial information about the company, outlines your goals for the
    13·1 answer
  • Materials Variances Assume that Pearle Vision uses standard costs to control the materials in its made-to-order sunglasses. The
    8·1 answer
  • Enith Consulting Co. has the following accounts in its ledger: Cash; Accounts Receivable; Supplies; Office Equipment; Accounts P
    7·1 answer
  • If the united states government lowers the income taxes on the wealthiest americans, while decreasing welfare payments to the po
    5·1 answer
  • the buyer has made an offer that the seller has accepted, and proper notice has been given to the buyer of the seller's acceptan
    14·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!