1. Calculate the following cross rates
a. The f/¥ rate given 1.3874 $/f and 110 ¥/$
b. The CHF/f rate given 1.3874 $/f and 0.9148 CHF/$
c. The €/f rate given 1.3874 $/f and 1.1807 $/€
d. The AUD/CHF rate given 0.9151 CHF/$ and 1.3620 AUD/$
“2. Given Forward Rate is CHF .50/USD,iuso = 4.2%,icHF=0.4%,estimate the spot price”
today.
“3. Suppose that the one-year interest rate is 3% in the United States,the spot exchange”
“rate is $1.18/€,and the one-year forwar d exchange rate is $1.14/€. What should the one-year interest rate be in the euro zone?”
4. Following quotations are available to you: (You may buy or sell at the stated rates.)
Assume that you have an initial DEM 1000 000 available.
“Is triangular arbitrage possible? If so,explain the steps and compute the profit.”
Lehman Brothers: 4.8600FR F/GRD Bear Stearns: 1.4200 DEM/GR D Bank of Scotland: 3.4400 FRF/DEM
5. The corporate tax rate for a company head office is 27%. The corpor ate tax rate for a
subsidiary in Narnia is 20%. Narnia has a thin-cap. regulation that requires at least a third of funding for the subsidiary comes from equity.
How would you fund the subsidiary from head-office?
6. Narnia has introduced a withholding tax of 15% on dividends (though not on interest payments). How would this change the optimum funding?
7. What contribution would be made to head office post-tax profit in question 6?
