{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

# ch12 sol - CHAPTER 12 INTERNATIONAL MARKETS ANSWERS TO...

This preview shows pages 1–2. Sign up to view the full content.

1 CHAPTER 12 INTERNATIONAL MARKETS ANSWERS TO END-OF-CHAPTER QUESTIONS 1. If a bushel of corn costs 3.00, and a British pound is worth \$1.50, how many dollars would a person receive for 100,000 bushels of corn sold in Britain in the spot market? If the delivery were to occur in three months and the U.S. interest rate exceeded the British rate by 2 percent per year, what would likely be received in the forward exchange market for a conversion arranged now if the current spot rate is \$1.50 per British pound? Explain. If a U.S. dollar cost of a British pound is \$1.50 and corn is selling for \$3.00 in the U.S., the pound cost of 100,000 bushels of corn in Britain's spot market is: d \$1.50/poun \$3.00 corn of Cost £2.00 The price of 100,000 bushels = £2 x 100,000 = £ 200,000 Assuming the forward/spot differential is reflected by interest rate differentials, if U.S. interest rates exceed British rates by 2 percent per year, we can assume that the U.S. inflation rate exceeds the British inflation rate by 2 percent per year and that the U.S. dollar is expected to depreciate by 2 percent per year, or (1.02) .25 or 1.00496 per quarter. The 90 day forward rate should be \$1.50(1.00496) = \$1.5074/ £ . 2. If a dollar can buy 98 Japanese yen and a British pound costs \$1.50, how many yen would it take to buy £1 ? If a pound of copper costs £ 1 in Britain, ¥1,60 in Tokyo, and \$1.45 in the United States, where is a pound of copper most expensive and where is it least expensive?

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern