fbe436 hw4 - UNIVERSITY OF SOUTHERN CALIFORNIA Marshall...

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1 UNIVERSITY OF SOUTHERN CALIFORNIA Marshall School of Business INTERNATIONAL FINANCIAL MANAGEMENT FBE 436 Aris Protopapadakis 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. 2% b. 3% c. 5% d. 8% e. We can’t say without additional information. 4.2 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. 5.00% b. 16.67% c. 22.50% d. -10.00% e. -11.11% 4.3 Assume that the current $/€ spot exchange rate is 0.8900 while a one month $/€ forward contract is quoted as 0.8891. a. The dollar is trading at a forward premium, the EUR at a forward discount. b. The dollar is trading at a forward premium, the EUR at a forward premium. c. The dollar is trading at a forward discount the EUR at a forward premium. d. The dollar is trading at a forward discount the EUR at a forward discount. e. We can’t say without additional information.
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