2009-08-30_175 - Solutions Guide: 2. Table 28.1 shows the...

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Solutions Guide: 2. Table 28.1 shows the 90-day forward rate on the South African rand. a. Is the dollar at a forward discount or premium on the rand? b. What is the annual percentage discount or premium? c. If you have no other information about the two currencies, what is your best guess about the spot rate on the rand three months hence? d. Suppose that you expect to receive 100,000 rand in three months. How many dollars is this likely to be worth a. The dollar is selling at a forward premium on the rand. b. c. Using the expectations theory of exchange rates, the forecast is: $1 = 6.5917 rand d. 100,000 rand = $(100,000/6.5917) = $15,170.59 10. In March 2004, an American investor buys 1,000 shares in a Mexican company at a price of 500 pesos each. The share does not pay any dividend. A year later she sells the shares for 550 pesos each. The exchange rates when she buys the stock are shown in Table 28.1. Suppose that the exchange rate at the time of sale is peso $12.0/$. a. How many dollars does she invest? b. What is her total return in pesos? In dollars? c. Do you think that she has made an exchange rate profit or loss? Explain. a. Pesos invested = 1,000 × 500 pesos = 500,000 pesos Dollars invested = 500,000/10.9815 = 45,531.12 b. Dollars received = (550
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2009-08-30_175 - Solutions Guide: 2. Table 28.1 shows the...

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