31. If the exchange rate of British pounds rises to $2.00 prior to the January option expiration date, what is the percentage return on investment for an investor who purchased a call on October 23?

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28. You purchase a call option on British pounds for a premium of $.04 per unit with an exercise price of $1.65. The option will not be exercised until the expiration date, if at all. If the spot rate on the expiration date is $1.67, your net profit or net loss per unit is:

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37. A US company borrows British pounds for one year at 6 percent. The US one-year interest rate is 8 percent. The one-year forward rate of the pound is $1.93. The spot rate of the pound at the beginning is $1.95. The pound's spot rate is $2.05 by the end of the year. Based on the information, compute the percentage change in pound and the effective interest rate of the loan in US dollar terms.

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28. A Canadian investor has Canadian $100,000 to invest for one year. US Treasury bills offer a yield of 11 percent. The current exchange rate of the Canadian dollar is US$0.50. What is the yield on the investment if the exchange rate of the Canadian dollar is US$0.46 at the end of the year?

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13. A multinational company is considering the establishment of a two-year project in Germany with a $8 million initial investment. The company's cost of capital is 12 percent. The required rate of return on this project is 18 percent. The project with no salvage value after two years is expected to generate net cash flows of 12 million euros in year 1 and 30 million euros in year 2. Assume no taxes and a stable exchange rate of $0.60 per euro. What is the net present value of the project in dollar terms?

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23. If the expected inflation rate is 4% and the real required return is 5%, what is the nominal interest rate?

asked 12 years ago in Economics by anonymous