Ross5eChap32sm - Chapter 32: International Corporate...

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c. True. The market would only be correct on average, while you would be correct all the time. 32.4 If we invest in Canada. for the next ix months, we will have: \$15,000,000 (1.03) = \$15,450,000 If we invest in France, we must exchange the dollars today for Euros, and exchange the Euros for dollars in six months. After making these transactions, the dollar amount we would have in six months would be: (\$15,000,000)(1/1.4)(1.035)(1.42) = \$15,746,785.71 We should invest in France. 32.5 a. If IRP holds, then: F– 180 = (Kr 6.43)[1 + (0.08 – 0.05)] 1/2 F– 180 = Kr 6.5257 Since given F– 180 is Kr6.56, an arbitrage opportunity exists; the forward premium is too high. Borrow Kr1 today at 8% interest. Agree to a 180– day forward contract at Kr 6.56. Convert the loan proceeds into dollars:Kr 1 (\$1/Kr 6.43) = \$0.15552
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This note was uploaded on 07/18/2010 for the course ECONMICS ECM359 taught by Professor Matazi during the Summer '10 term at University of Toronto- Toronto.

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Ross5eChap32sm - Chapter 32: International Corporate...

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