Download Solutions of International Financial Management - Assignment 1 | FINA 4360 and more Assignments International Finance and Trade in PDF only on Docsity! FINA 4360 Homework 1: Solutions 3.11. St(JPY/PLN) = (.17 USD/PLN) x 1/(.008 USD/JPY) = 21.25 JPY/PLN 5.4. p = [(Ft,T –St)/St] x 360/T = [(1.75 – 1.78)/1.78] x 2 = -3.37% (negative =>discount) = [(.102 – .100)/.100] x 4 = 8% (positive =>premium) 4.19. a) The inflation of the US would put downward pressure on the US dollar which would make people in the US want to import more. b) Country K’s people would invest in the US dollar which would have a negative effect on country K’s economy c) People in the US would have more income to invest in Country K’s government and corporate securities. d) Depending on the size of the tariff, US would demand for Country K’s goods would decrease and US would look to bring this product in from another country or domestically produce it. e) Overall it probably wouldn’t do a whole lot since a lot of these impacts negate each other. 4.20. (A) Blue Demon Bank can capitalize on its expectations about pesos (MXN) as follows: 1. Borrow MXN 70M 2. Convert the MXN 70M to USD: MXN 70M x .15 USD/MXN = USD 10.5M 3. Lend the USD at 8.0% over a 10-day period. Accrued interest in 10 days: USD 10.5M×[1+(.08×10/360)]= USD 10M×[1.002222]= USD 10,523,333 4. Repay the peso loan. The repayment amount on the peso loan is: MXN 70M × [1 + (.087×10/360)] = 70M × [1.002417] = MXN 70,169,167 5. Based on the expected St= .14 USD/MXN, repay the MXN loan: MXN 70,169,167 × .14 USD/MXN = USD 9,823,683 6. Blue Demon Bank’s profits (if its forecasted exchange rate is accurate): USD 10,523,333 – USD 9,823,683 = USD 699,650 (B) Blue Demon Bank can capitalize on its expectations as follows: 1. Borrow USD 10 million 2. Convert the USD 10M to MXN: USD 10M/.15 USD/MXN = MXN 66,666,667 3. Lend the MXN at 8.5% over a 30-day period. Accrued interest in 30 days: MXN 66,666,667×[1+(.085×30/360)]=66,666,667×[1.007083]=MXN 67,138,889 4. Repay the dollar loan. The repayment amount on the dollar loan is: USD 10M × [1 + (.083×30/360)] = USD 10M × [1.006917] = USD 10,069,170 5. Convert the MXN to USD to repay the loan, based on St= .17 USD/MXN: MXN 67,138,889 × .17 USD/MXN = MXN 11,413,611 6. Blue Demon Bank’s profits (if its forecasted exchange rate is accurate): USD 11,413,611 – USD 10,069,170 = USD 1,344,441 5.12) Premium received per unit = USD. 01 CAD sales per unit = USD .76
