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Chapter 17 homework 516

# Chapter 17 homework 516 - Telicia Lawhorn Financial...

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Financial Management April 18, 2011 Chapter 17: Multinational Financial Management Problem (p. 726) 17-2 Interest Rate Parity 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? f t /e 0 = (1+r h )/(1+r f ) r f = .055/2 r f = .0275 r f = 2.75% r h = .07/2 r h = .035 r h = 3.5% e 0 = 0.009 f t / .009 = 1.035/1.0275 1.0275f t = \$0.00932 f t = \$0.00904 The 6-month forward exchange rate is 1 yen = \$0.00907. Problem (p. 864) 17-3 Purchasing Power Parity 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? U S TV = \$500 French TV = 550 euros Spot rate = ? P

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Chapter 17 homework 516 - Telicia Lawhorn Financial...

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