国际财务管理（原书第5版）答案

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国际财务管理（原书第5版）答案

Lecture 4

Exchange Rate Parity Problems: 6-2, 3, 4, 7, 8 Suggested Solutions 2. Option a:

When you buy ￡35,000 forward, you will need $49,000 in three months to fulfill the forward contract. The present value of $49,000 is computed as follows: $49,000/(1.0035)3 = $48,489. Thus, the cost of Jaguar as of today is $48,489.

Option b:

The present value of ￡35,000 is ￡34,314 = ￡35,000/(1.02). To buy ￡34,314 today, it will cost $49,755 = 34,314x1.45. Thus the cost of Jaguar as of today is $49,755. You should definitely choose to use “option a”, and save $1,266, which is the difference between $49,755 and $48489.

3.

a.(1+I$) =1.02 (1+I￡)(F/S) = (1.0145)(1.52/1.50) = 1.0280 Thus, IRP is not holding exactly.

b.(1) Borrow $1,500,000; repayment will be $1,530,000. (2) Buy ￡1,000,000 spot using $1,500,000.

(3) Invest ￡1,000,000 at the pound interest rate of 1.45%; maturity value will be ￡1,014,500.

(4) Sell ￡1,014,500 forward for $1,542,040 Arbitrage profit will be $12,040

c.Following the arbitrage transactions described above, The dollar interest rate will rise; The pound interest rate will fall;

The spot exchange rate will rise; The forward exchange rate will fall.

These adjustments will continue until IRP holds. 4.

a.(1+ i $) = 1.014 < (F/S) (1+ i € ) = 1.053. Thus, one has to borrow dollars and invest in euros

to make arbitrage profit.

1)Borrow $1,000,000 and repay $1,014,000 in three months. 2)Sell $1,000,000 spot for €800,000.

3)Invest €800,000 at the euro interest rate of 1.35 % for three months and receive

€810,800 at maturity.

4)Sell €810,800 forward for $1,037,758.

Arbitrage profit = $1,037,758 - $1,014,000 = $23,758. b.Follow the first three steps above. But the last step, involving exchange risk hedging, will be

different.

5)Buy $1,014,000 forward for €792,238.

Arbitrage profit = €810,800 - €792,238 = €18,562 7.

a.ZAR spot rate under PPP = [1.05/1.11](0.175) = $0.1655/rand.

b.Expected ZAR spot rate = [1.10/1.08] (0.158) = $0.1609/rand.

c.Expected ZAR under PPP = [(1.07)4/(1.05)4] (0.158) = $0.1704/ran

d. 8.

a.First, note that (1+i €) = 1.054 is less than (F/S)(1+i €) = (1.60/1.50)(1.052) = 1.1221.