fbe436 hw4 solution

Fbe436 hw4 solution

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Unformatted text preview: UNIVERSITY OF SOUTHERN CALIFORNIA Marshall School of Business INTERNATIONAL FINANCIAL MANAGEMENT FBE 436 Aris Protopapadakis ANSWERS TO PROBLEM SET # 4: Multiple Choice Questions: 4.1 A German investor has DM 500,000 to invest for 1 year in US securities. One-year US Treasury bills offer a yield of 5% while German Treasury bills offer only 3%. What is the realized return on the investment after one year? a. b. c. d. e. 4.2 2% 3% 5% 8% We can’t say without additional information. A Japanese investor buys one-year US Treasury bills with a yield of 5%. The current FX rate is 120 ¥/$. What is the return on the investment if the exchange rate is 140 at the end of the year? a. b. c. d. e. 4.3 5.00% 16.67% 22.50% -10.00% -11.11% Assume that the current $/€ spot exchange rate is 0.8900 while a one month $/€ forward contract is quoted as 0.8891. a. b. c. d. e. The dollar is trading at a forward premium, the EUR at a forward discount. The dollar is trading at a forward premium, the EUR at a forward pr...
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