60.1K

Verified Solution

Link Copied!

11. A share of the ADR of a Dutch firm represents one share of that firm's stock that is traded on a Dutch stock exchange. The share price of the firm was 15 euros when the Dutch market closed. As the U.S. market opens, the euro is worth $1.10. What is the price of the ADR? (2 points) 12. Assume that the bank's bid quote for the Mexican peso is $.126 and the ask price is points) 13. s.129. If you have Mexican pesos, what is the amount of pesos that you need to purchase You wish to speculate by conducting a carry trade to take advantage of interest rate differentials that do n ot offset expected currency movements over the next 30 days. You will use $100,000 of own funds in this speculation. You will borrow 600,000 euros as additional funds to lever up your speculation. You expect to be able to borrow euros at 0.5% per rnonth, and invest in British Pounds (GBP) earning 1% per month, while you expect the euro to appreciate against the USD by 3% over the next 30 days, you do not expect any change in USD/GBP exchange rate for the next 30 days. Assume the current spot rate for USD/GBP is at 1.8000, and the current spot rate of USD/Euro is 1.2000. Your speculative horizon is obviously 30 days (because it has to match your expectations horizon for exchange rate movements) a) What is you profit or loss from this carry trade? (3.5 points) b) What %return did you realize on doing the carry trade? (1.5 points)

Answer & Explanation Solved by verified expert

See Answer