Solutions Ch 13, 14, 15 - Chapter#13 2 An investor in...

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2. An investor in England purchased a 91-day T-bill for $987.65. At that time, the exchange rate was $1.75 per pound. At maturity, the exchange rate was $1.83 per pound. What was the investor’s holding period return in pounds? Solution: The bond cost $987.65/$1.75 = £564.37. At maturity, the $1,000 is worth $1,000/$1.83 = £546.45. The holding period return is (546.45 - 564.37)/564.37 = - 0.0317. 7. The New Zealand dollar to U.S. dollar exchange rate is 1.36 and the British pound to U.S. dollar exchange rate is 0.62. If you find that the British pound to New Zealand dollar is trading at 0.49, what would you do to earn a riskless profit? Solution: Complete the following transactions simultaneously: a. Exchange $1.00 into 1.36 New Zealand dollars. b. Exchange the 1.36 New Zealand dollars into 0.6664 British pounds. c. Exchange the 0.6664 British pounds into $1.0748. This yields a riskless $0.0748. 12. The current exchange rate between the Japanese yen and the U.S. dollar is ¥120 per dollar. If the dollar is expected to depreciate by 10% relative to the yen, what is the new expected exchange rate? Solution:
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Solutions Ch 13, 14, 15 - Chapter#13 2 An investor in...

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