Quiz 6 with solutions

Quiz 6 with solutions - (Hint: Since both of the spot rates...

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Quiz 6 BUSI 105: Spring 2008 Name:____________________________________ Using the Interest Rate Parity theory, please fill in the blanks in the following table: Assume that the risk free rate in the US 4%. South Korea Won/$US Hong Kong Dollar/$US Spot Rate 1032.5 7.80 Forward rate a. 1042.42 7.67 Foreign risk free rate 5% b. 2.27% a b. Using the information above, if a company in South Korea needed 100,000 Hong Dollars to pay for some imported goods, what will it cost them in Won?
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Unformatted text preview: (Hint: Since both of the spot rates above are equal to $1, they are also equal to each other.) $1 = 1032.5Won = 7.80 Hong Kong $ 1032.5 Won = 7.8 HK$ 1032.5Won/7.8 = 1HK$ = 132.37Won 100,000HK$ = 13,237,000 Won 42 . 1042 04 . 1 05 . 1 5 . 1032 5 . 1032 04 . 1 05 . 1 = × = = forward % 27 . 2 0227 . . 1 0227 . 1 0227 . 1 80 . 7 67 . 7 04 . 1 80 . 7 67 . 7 04 . 1 = =-= = × = = r x...
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This note was uploaded on 04/04/2012 for the course BUSINESS 105 taught by Professor Luann during the Spring '08 term at uot.

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