FI516_Homework7_BrianLin - Brian Lin D01278742 Week 7...

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Unformatted text preview: Brian Lin D01278742 Week 7 Homework Chapter 17 Questions Problem 17-2 Six-month T-bills have a nominal rate of 7%, while default-free Japanese bonds that mature in 6 months have a nominal rate of 5.5%. In the spot exchange market, 1 yen equals $0.009. If interest rate parity holds, what is the 6-month forward exchange rate? T-Bill Nominal Rate = 7% J-Bond Nominal Rate = 5.5% 1 Yen = $0.009 1 US = 111.11 Yen 6 Month US Rate = 3.5% 6 Month Japan Rate = 2.8% 6-Month Forward Exchange Rate US Dollar/Yen = (1+3.5%)*0.009/(1+2.8%) 6-Month Forward Exchange Rate US Dollar/Yen = 0.00907 Problem 17-3 A television set costs $500 in the United States. The same set costs 550 Euros in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar? TV = $500 TV = 550 Euro Spot Exchange Rate b/w Euro and US Dollar = 550/500 or 500/550 Spot Exchange Rate b/w Euro and US Dollar = $1 = 1.1 Euro and 1 Euro = $0.9091 Problem 17-10 Early in September 1983, it took 245 Japanese yen to equal $1. Early in September 1983, it took 245 Japanese yen to equal $1....
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This note was uploaded on 10/13/2011 for the course MAFM FI516 taught by Professor Anthonycriniti during the Spring '10 term at Keller Graduate School of Management.

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FI516_Homework7_BrianLin - Brian Lin D01278742 Week 7...

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