Quiz 2 (Version B)Solution

Quiz 2 (Version B)Solution - Version B Fin 536 Quiz 2...

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Version B Fin 536 Quiz 2 Solutions Name________________________Section_4pm/7pm 1. (5pts)Fill out the answers. a. Henry borrows ¥1,000,000 at an interest rate i ¥ =2%; converts it into Australian dollars at the current spot rate S(¥/AU$)=82; deposits the funds in a Australian savings account for a year at interest rate of i AU$ =6%. At the end of year, Henry converts his revenue in Australian dollars back into yens at the spot rate S 1 (¥/AU$). Compute his net profit in the following scenarios. If the spot rate is S 1 (¥/AU$)=86, the net profit/loss is ¥__91707.32 ____. If the spot rate is S 1 (¥/AU$)=75, the net profit/loss is ¥__ - 50487.80 ___. If the spot rate is S 1 (¥/AU$)=_____78.91 __, Henry will have zero profit. b. Three banks are quoting the following rates: Citibank quotes $1.93/£; UBS quotes €1.25/£; Deutsche Bank quotes $1.42/€. The cross rate from Citibank and UBS is S c ($/€)=__1.54 _______. If you start with $1000, you profit will be $_____87.32 _____ from arbitrage. The direction of arbitrage implies _____selling _____ (buying/selling) $ from(or to) Deutsche Bank. c.
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This note was uploaded on 12/06/2011 for the course FIN 536 taught by Professor Staff during the Fall '11 term at S.F. State.

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Quiz 2 (Version B)Solution - Version B Fin 536 Quiz 2...

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