Chapter 21
Problems 1-18
Input boxes in tan
Output boxes in yellow
Given data in blue
Calculations in red
Answers in green
Chapter 21
Question 1
Input Area:
Output Area:
Chapter 21
Question 2
Input Area:
Output Area:
US dollars 100$
SF value per $ 0.9419SFr.
$ per £ 1.5861$
Chapter 21
Question 3
Input Area:
Output Area:
The yen is selling at a premium because it is
the spot market
The C$ is selling at a discount because it is
the spot market
The value of the dollar will fall
relative to the yen.
The value of the dollar will rise
relative to the Canadian dollar.
Spot ¥/$ rate 82.1300
6 month ¥/$ rate 81.9700
Spot $/C$ rate 0.9990
3 month $/C$ rate 0.9970
Chapter 21
Question 4
Input Area:
Output Area:
in Canada.
Spot exchange rate for C$ 1.05$
6-month forward rate for C$ 1.07$
Price of beer in Canada 2.50$
Input Area:
Output Area:
Chapter 21
Question 5
Chapter 21
Question 6
Input Area:
Output Area:
Spot rate for U.K. (£/$) 0.6305
Forward rate for Great Britian 0.6316
Spot rate for Japan (¥/$) 82.13
Forward rate for Japan 81.97
Spot rate for Switzerland (SFr/$) 0.9419
Forward rate for Switzerland 0.9402
U.S. risk-free rate 1.40%
Chapter 21
Question 7
Input Area:
Output Area:
Amount invested $30,000,000
Months to invest 3
Monthly U.S. interest rate 0.24%
Monthly British interest rate 0.29%
Spot rate for Great Britain 0.631
Forward rate for Great Britain 0.633
Chapter 21
Question 8
Input Area:
Output Area:
Spot rate for Poland 2.86
Expected rate 2.94
Duration (years) 3.00
Chapter 21
Question 9
Input Area:
Output Area:
Singapore $ 1.2849
Cost in Singapore $ 233.50
# days until arrival 90
Sales price 195.00$
Exchange rate change 10%
Chapter 21
Question 10
Input Area:
Output Area:
an arbitrage exists; the forward premium is
Convert the loan proceeds into
Repay the loan, which costs 1.02771
ending with a profit of 0.00495
Spot on krone 5.78
Forward on krone 5.86
Risk-free rate (U.S.) 3.8%
Risk-free rate (Norway) 5.7%
Days for contract 180
Chapter 21
Question 11
Input Area:
Output Area:
Inflation (U.S.) 2.60%
T-bills 3.40%
Australian gov’t securities 4.00%
Canadian gov’t securities 7.00%
Tiawanese gov’t securities 9.00%
Chapter 21
Question 12
Input Area:
Spot on yen 79.12
Output Area:
Forward on yen 78.64
Number of months 3
Chapter 21
Question 13
Input Area:
5
Output Area:
Spot on HUF 204.32
U.S. inflation rate 1.90%
Hungarian inflation rate 4.50%
# yrs to predict exchange rate 1
2
Chapter 21
Question 14
Input Area:
Output Area:
E(S1) $/€ 1.3667
E(S2) $/€ 1.3734
E(S3) $/€ 1.3801
Project cost in dollars 16,320,000.00$
Dollar value of CF in year 1 2,460,023.58$
Dollar value of CF in year 2 3,570,820.08$
Dollar value of CF in year 3 4,830,482.58$
Dollar value of sales price in year 3 12,283,227.12$
Total dollar value of year 3 CF 17,113,709.70$
Project cost 12,000,000€
Year 1 cash flow 1,800,000€
Year 2 cash flow 2,600,000€
Year 3 cash flow 3,500,000€
U.S.risk-free rate 2.30%
Euroland risk-free rate 1.80%
Cost of capital 13.00%
Sales price in three years 8,900,000€
Chapter 21
Question 15
Input Area:
Output Area:
a. Implicitly, it is assumed that interest rates won’t change over the life of the
Cost (SF) 21,000,000
Cash flows (SF) 5,900,000
Required return 12%
Current exchange rate 1.090
Eurodollar rate 5%
Euroswiss rate 4%
Chapter 21
Question 16
Input Area:
Assets (solaris) 27,000
Output Area:
Debt (solaris) 11,000
Equity (solaris) 16,000
Current exchange rate 1.50
Chapter 21
Question 17
Input Area:
Output Area:
Assets (solaris) 27,000
Debt (solaris) 11,000
Equity (solaris) 16,000
Retained earnings (solaris) 1,250
Chapter 21
Question 18
Input Area:
Output Area:
Foreign currency approach:
# of years 3
Required return 10%
Current exchange rate 0.500
Euro risk-free rate 7%
Dollar risk-free rate 5%