Professor Ted Azarmi's Forum

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1
Homeworks and presentations posted by students / HW 1,3,4
« Last post by aabdelja on January 22, 2018, 11:39:24 pm »
HW 1,3,4 by Amina Abdeljaoued (197541)
2
Homeworks and presentations posted by students / Homework 1-4
« Last post by lschoell on January 22, 2018, 10:07:14 pm »
Dear Mr. Azarmi,

please find attached the solutions to HW 1-4.

Best regards,

Luisa Schöllig
197687
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Dear Mr. Azarmi,

Please find attached my homework for this lesson.

Kind regards,
Jose Manuel Legaz Ruiz
4
Homeworks and presentations posted by students / HW 4
« Last post by mkromer on January 22, 2018, 06:52:06 pm »
Attached You'll find my Homework 4.

Best regards

Manuel Kromer, 197591
5
Homeworks and presentations posted by students / HW 2-4
« Last post by rtouma on January 22, 2018, 06:49:26 pm »
Dear Mr Azarmi,

attached you will find HW 2-4.

Best regard
Ricarda Touma, 197701
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Homeworks and presentations posted by students / HW 3
« Last post by mkromer on January 22, 2018, 06:46:36 pm »
Hello Mr- Alarm, Attached you'll find my third Homework.

Best regards

Manuel Kromer 197591
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Homeworks and presentations posted by students / Homework 1-3
« Last post by jmuellne on January 22, 2018, 04:43:56 pm »
Homework 1-3
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Covered Interest Arbitrage / Re: Your full name for grading of the homework
« Last post by Anastasiia_Riame on January 22, 2018, 04:08:08 pm »
Anastasiia Riame

Interest Rate Parity

1 – Year Japanese bonds pay 4,2% interest
   Rf = 0.042
1 – Year US Treasury notes pay 7,5% interest
   Rd = 0.075
Japanese ¥/$ Spot Rate is 123
   S = 123 ¥/$
Japanese ¥/$ Forward Rate is 117
   F = 117 ¥/$

Is dollar at a foward Premium or Discount?
   F=117 < S=123 ; dollar is at the Forward Discount, F>S

Does the Interes Parity Hold?
   F/S (=?) (1+Rf)/(1+Rd)   ;    0.951 = 117/123 (=?) 1.042/1.075 = 0.97
                           <
            Parity Does Not Holds
   X/1.075 = 0.951 -> X = 0.951 * 1.075 = 1.022 -> 2,2%
1-Year Japanese bond interest rate is too high, it must decrease to 2,2% to make the Interest rate Parity Hold.

1. We borrow 1 000 000 $. We use the Spot Rate Interest to see how much we have to pay back next year.
   1 000 000 $ * (1+0.075) = 1 075 000 $ next year payment at Spot Rate Interest

2º  Exchange 1 000 000 $ to ¥ at the spot rate from Japan 123 ¥/$
1 000 000 $ * 123 ¥/$ = 123 000 000 ¥ *(1 + 0.042) = 128 166 000 ¥ next year payment

3º Exchange 128 166 000 ¥ at the forward rate 117 ¥/$
   128 166 000 ¥ / 117 ¥/$ = 1 095 435,9 $
4º Profit from arbitrage
   1 102 941 $ - 1 075 000 $ = 27 941$ of Profit
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Janosi Kriszta Annika
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Janosi Kriszta Annika
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