4500.8 - 3/1/11 Problem Set 1 Parity Relationships &...

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3/1/11 1 Problem Set 1 Problem 1 NY LON FRA $1=£0.60 $1 = 0.75 £1 = 1.50 $1,000,000 £ 600,000 900,000 $1,200,000 Proft = $200,000
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3/1/11 2 Problem 2 NY LON ZUR $1=£0.40 $1=CHF 1.004 £1=CHF 2.008 $1,000,000 £ 500,000 CHF 1,004,000 $1,250,000 Proft = $250,000 Problem 3 FRA today $1,000,000 769,230. 77 $1,027,766. 31 784,554. 44 Profit = $22,822. 69 NY today $1.30 = 1 $1.31 = 1 FRA later 4% NY later 1% $1,004,943. 62 What is not balanced?
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3/1/11 3 Problem 4 • Real rate in Switzerland: (6% – 1%) / 1.01 = 4.95% • Real rate in United States: (2% – 0.5%) / 1.005 = 1.49% Money will fow to the higher real rate, fowing From the U.S. into Switzerland Pressures will be on The U.S. nominal rate to rise The Swiss nominal rate to decline Problem 5 • Real rate in Japan: (5% – 1%) / 1.01 = 3.96% • Real rate in UK: (10% – 7%) / 1.07 = 2.80% Money will fow to the higher real rate, fowing From the UK into Japan Pressures will be on The UK nominal rate to rise The Japanese nominal rate to decline
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3/1/11 4 Problem 6 Net for RRNB: extra 1% each year This is includes a Floating/Floating Swap RRNB T-Bill + 1% CitiCorp LIBOR + 1% Counterparty T-Bill LIBOR BW Homes T + 2% HSBC Bank LIBOR + 1% $10,000 per year pro±t! Problem 7: Gold
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This note was uploaded on 04/15/2011 for the course FINA 4500 taught by Professor Staff during the Spring '08 term at North Texas.

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4500.8 - 3/1/11 Problem Set 1 Parity Relationships &...

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