Unformatted text preview: UNIVERSITY OF SOUTHERN CALIFORNIA
Marshall School of Business
INTERNATIONAL FINANCIAL MANAGEMENT
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?
e. 4.2 2%
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?
e. 4.3 5.00%
-11.11% Assume that the current $/€ spot exchange rate is 0.8900 while a one month $/€ forward
contract is quoted as 0.8891.
e. The dollar is trading at a forward premium, the EUR at a forward
The dollar is trading at a forward premium, the EUR at a forward pr...
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- Forward contract