Page Layout Formulas Data Review View ,111 A- A+ Wrap Text , Calibri (Body) Merg
ID: 2616697 • Letter: P
Question
Page Layout Formulas Data Review View ,111 A- A+ Wrap Text , Calibri (Body) Merge & Cerite.. $,96 , 4) Forecasting with a Forward Rate. Assume that the four year annualized interest rate in the United States is 9 percent and the four year annualized interest rate in Singapore is 6 percent. Assume interest rate parity holds for horizon. Assume that the spot rate of the Singapore dollar is $.60. If the forward rate is used to forecas exchange rates, what will be the forecast for the Singapore dolilar's spot rate in four years? What percentage appreciation or depreciation does this forecast imply over the four year period? 4 year compound return One year interest rate Country US Singapore USD/Sing dollar SO Years 4 yr Premium Forward rate (4 year) Put your answers to the following questions in the green baxes below each Sa) Transaction Exposure. Aggie Co. produces chemicals. It is a major exporter to Europe, where its main competition is from other U.S. exporters. All of these companies invoice the products in U.S. dollars. Is Aggie's transaction exposure likely to be significantly affected if the euro strengthens or weakens? Explain. Sb) if the euro weakens for several years, can you think of any change that might occur in the global chemicals market? 6) Ovaltine Co expects to pay C200,000 in one month for its imports from Portugal It also expects to receive 250,000 for its exports to italy in one month. Ovaltine Co. estimates the standard deviation of monthly percentage changes of the euro to be 3 percent over the last 40 months. Assume that these percentage changes are normallyExplanation / Answer
5a) If Euro strenghtens the European people have to pay less of Euros to purchase the products, since everybody invoices its bills in dollars for Aggie company there is no competitive advantage and his transactions are not significantly impacted. If euro weakens the european people have to pay more of Euros and this would reduce the demand for these chemicals to import from US,this will have impact to all exporters and not only to aggie has all are invoicing the bills in dollars
b) If Euro weakens for several years there is a possible that the european people may stop importing chemicals from US and produce the same in their own county if it is cheaper.
Four year rate US (1.09^4) -1 0.411582 41.16% Four year rate Singapore (1.06^4)-1 0.262477 26.25% 1.568068 4 year premium 1.41/1.26 -1 11.9 Forward Rate 0.60*(1+0.119) 0.6714 The appreciations is by 11.90%Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.