Ask Question
BusinessBusiness
26 March, 09:53

The current rates are: (1) Spot exchange rate: $2.00/£; (2) 90-day USD denominated bonds: 2% (8% annual); (3) 90-day UK pound denominated bonds: 4% (16% annual); (4) Current 90 day forward exchange rate: $1.98/£ Is the Pound trading at a premium or discount?

+5
Answers (1)
  1. 26 March, 10:18
    0
    Solution and Explanation:

    Assume US Investor need 1000 Pound after 90 days:

    Option 1: Forward Option:1000 pound = 1000 multiply with 1.98 = $1980

    Option 2: Invest in UK:

    Need 1000 pound after 90 days

    so, Invest in UK pound today 1000 divide by 1.04 = 961.5385

    to get 961.5385 today he need to pay = 961.5385 multiply with $2 (Current Spot Rate)

    = $1923.077

    Option 3 : Invest in US:

    Need 1000 Pound after 90 days

    so forward Exchange rate 1.98 he need 1000 pound * 1.98 = 1980 $ after 90 days

    so invest today 1980/1.02 = $1941.176

    Advise: Option 2 is best, Invest in UK Bonds
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “The current rates are: (1) Spot exchange rate: $2.00/£; (2) 90-day USD denominated bonds: 2% (8% annual); (3) 90-day UK pound denominated ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers
You Might be Interested in
In the Wealth of Nations, Adam Smith said that one reason specialization makes someone more productive is because "a man commonly saunters a little in turning his hand from one sort of employment to another.
Answers (1)
The Sheridan Company purchased $7140 worth of laundry supplies on June 2 and recorded the purchase as an asset. On June 30, an inventory of the laundry supplies indicated only $1260 on hand.
Answers (1)
Suppose your company runs a shuttle business of a hotel to and from the local airport. The costs for different customer loads are: 1 customer: $30 2 customers: $32 3 customers: $35 4 customers: $38 5 customers: $42 6 customers: $48 7 customers: $57
Answers (1)
A company known for its high-quality watches and clocks introduces a line of well-designed pocket watches to increase its market share.
Answers (1)
Governments may create to discourage companies from producing negative externalities.
Answers (1)
New Questions in Business
1. A complaint of sexual harassment by a part-time worker in a hardware business was upheld when the Tribunal found that the employer had failed to take sufficient action in relation to the employee's report of inappropriate behaviour.
Answers (1)
Suppose that the government sets a price floor for milk that is above the competitive equilibrium price With the price floor, consumers are willing to purchase the quantity indicated where the price floor intersects the With the price floor, the
Answers (1)
Choose the best revision of the previous sentence. Because many executives have access to company jets boards of directors have a responsibility to ensure that shareholders are not footing the bill for personal travel.
Answers (1)
Who puts the federal budget together?
Answers (1)
Board Games, Inc. makes board games. The following data pertains to the last six months:Direct Labor HoursManufacturing OverheadMonth 1 45,000 $295,000Month 2 60,000 $320,000Month 3 57,000 $323,000Month 4 52,000 $247,250Month 5 34,000 $178,200Month
Answers (1)
Home » Business » The current rates are: (1) Spot exchange rate: $2.00/£; (2) 90-day USD denominated bonds: 2% (8% annual); (3) 90-day UK pound denominated bonds: 4% (16% annual); (4) Current 90 day forward exchange rate: $1.
Sign Up Forgot Password?