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a) Suppose it takes 1.3037 U. dollars today to purchase one British pound in the foreign exchange market, and currency forecasters predict that the U....

1.a) Suppose it takes 1.3037 U.S. dollars today to purchase one British pound in the foreign exchange market, and currency forecasters predict that the U.S. dollar will depreciate by 15% against the pound over the next 30 days. How many dollars will a pound buy in 30 days? 

 

1.b) Suppose a U.S. investor wishes to invest in a British firm currently selling for 50 pounds per share by buying 200 shares of the British firm. The current exchange rate is $1.31 per pound. After one year, the exchange rate is $1.60 per pound and the share price is 57 pounds per share. What is the dollar-denominated return in percentage?


1.c) The annual risk free rate in the US is 3.0% and the annual risk free rate in Japan is 1.30%. If the spot rate of yen to dollars is 112.00, what is the likely yen per dollar forward rate? 

 

1.d) A U.S.-based importer, Zarb Inc., makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs, or $24,000, at the spot rate of 1.665 francs per dollar. The terms of the purchase are net 90 days, and the U.S. firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk. Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 francs. If the spot rate in 90 days is actually 1.6480 francs, how much will the U.S. firm have saved or lost in U.S. dollars by hedging its exchange rate exposure? 

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