Financial Markets and Institutions (2-downloads)

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3. An investor in Canada purchased 100 shares of IBM

on January 1 at $93.00 per share. IBM paid an annual

dividend of $0.72 on December 31. The stock was sold

that day as well for $100.25. The exchange rate was

$0.68 per Canadian dollar on January 1 and $0.71 per

Canadian dollar on December 31. What is the

investor’s total return in Canadian dollars?

4. The current exchange rate is 0.75 euro per dollar, but

you believe the dollar will decline to 0.67 euro per dol-

lar. If a euro-denominated bond is yielding 2%, what

return do you expect in U.S. dollars?

5. The six-month forward rate between the British

pound and the U.S. dollar is $1.75 per pound. If six-

month interest rates are 3% in the United States and

150 basis points higher in England, what is the cur-

rent exchange rate?

6. If the Canadian dollar to U.S. dollar exchange rate is

1.28 and the British pound to U.S. dollar exchange

rate is 0.62, what must the Canadian dollar to British

pound exchange rate be?

7. The New Zealand dollar to U.S. dollar exchange rate

is 1.36, and the British pound to U.S. dollar exchange

rate is 0.62. If you find that the British pound to New

Zealand dollar were trading at 0.49, what would you

do to earn a riskless profit?

8. In 1999, the euro was trading at $0.90 per euro. If

the euro is now trading at $1.16 per euro, what is the

percentage change in the euro’s value? Is this an

appreciation or depreciation?