Assume the following information us investors have

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Chapter 17 / Exercise 028
Financial Management: Theory & Practice
Brigham/Ehrhardt
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33. Assume the following information: U.S. investors have $1,000,000 to invest: 1-year deposit rate offered by U.S. banks = 12% 1-year deposit rate offered on Swiss francs = 10% 1-year forward rate of Swiss francs = $.62 Spot rate of Swiss franc = $.60 Given this information: b. interest rate parity doesn't exist and covered interest arbitrage by U.S. investors results in a yield above what is possible domestically. 34. Assume the following information: Current spot rate of Australian dollar = $.64 Forecasted spot rate of Australian dollar 1 year from now = $.59 1-year forward rate of Australian dollar = $.62 Annual interest rate for Australian dollar deposit = Annual interest rate in the U.S. = Given the information in this question, the return from covered interest arbitrage by U.S. investors with $500,000 to invest is ____%. e. about 5.59 35. Assume the following bid and ask rates of the pound for two banks as shown below: Bid Ask Bank C $1.61 $1.63 Bank D $1.58 $1.60 As locational arbitrage occurs: d. the bid rate for pounds at Bank C will decrease; the ask rate for pounds at Bank D will increase. 36. Assume the bid rate of an Australian dollar is $.60 while the ask rate is $.61 at Bank Q. Assume the bid rate of an Australian dollar is $.62 while the ask rate is $.625 at Bank V. Given this information, what would be your gain if you use $1,000,000 and execute locational arbitrage? That is, how much will you end up with over and above the $1,000,000 you started with? 9% 6%
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Financial Management: Theory & Practice
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Chapter 17 / Exercise 028
Financial Management: Theory & Practice
Brigham/Ehrhardt
Expert Verified
37. Assume the following information for a bank quoting on spot exchange rates: Exchange rate of Singapore dollar in U.S. $ = $.60 Exchange rate of pound in U.S. $ = $1.50 Exchange rate of pound in Singapore dollars = S$2.6 Based on the information given, as you and others perform triangular arbitrage, what should logically happen to the spot exchange rates?
38. Bank A quotes a bid rate of $.300 and an ask rate of $.305 for the Malaysian ringgit (MYR). Bank B quotes a bid rate of $.306 and an ask rate of $.310 for the ringgit. What will be the profit for an investor who has $500,000 available to conduct locational arbitrage?
39. Which of the following is an example of triangular arbitrage initiation?

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