1. Calculate the following cross rates
a. The 8/F rate given 1.3874 $/€ and 110 F/$ b. The CHF/€ rate given 1.3874 $/8 and 0.9148 CHF/$ c. The €/f rate given 1.3874 $/€ and 1.1807 $/€ d. The AUD/CHF rate given 0.9151 CHF/$ and 1.3620 AUD/$
2. Given Forward Rate is CHF1.50/USD, iusn = 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 forward 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 1 000 000 available. Is triangular arbitrage possible? If so, explain the steps and compute the profit. Lehman Brothers: 4.8600FRF/GRD Bear Stearns: 1.4200 DEM/GRD Bank of Scotland: 3.4400 FRF/DEM
5. The corporate tax rate for a company head office is 27%. The corporate 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?
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