6) Given the January 2015 exchange rates (Euros/one unit foreign currency) and t

Question

6) Given the January 2015 exchange rates (Euros/one unit foreign currency) and the appreciation/depreciation information, determine the value of the euro as of Sept 2, 2017? For example, the pound depreciated against the euro, while the US dollar appreciated against the euro. Did the euro appreciate or depreciate against each specific Amount appreciate/ What is value depreciate of the euro on 4/16/18 (1/31/2015 to British Pound US Dollar Swiss Franc Japanese Yen Chinese Yuan 1/31/15 4/16/18) €1.3303-13.00% €0.8851-8.40% €0.9600-12.32% €0.0075 0.53% €0.1433-10.19% 7) Brilliantine Bank expects that the Singpapore dollar will depreciate against the US dollar from its spot rate of $0.43 to $0.42 in 60 days The following interbank lending and borrowing rates exist Currency US dollar Singapore dollar Assume a 360 day bankers' year 7) Lending Rate Borrowing Rate 7,20% 24 00% 7.00% Brilliantine considers borrowing 10 million Singapore dollars in the interbank market and investing the funds in US dollars for 60 days. Estimate the profits (or losses) that could be earned from this strategy. Should the bank pursue this strategy? Show each step of the transaction process in the space below. Put your final profit or loss figure Singapore dollars in the box below a) Final profit or loss: Sing Dollars b) Should the firm pursue the strategy? Show all steps below:

Explanation / Answer

6.

Appreciate/Depreciate

(1/31/15 to 4/16/18)

7.

Let us denote Singapore dollars as SGD

Given that

Spot Rate = $0.43/SGD

Expected Spot Rate (60days) = $0.42/SGD

Brilliantine Bank follows the strategy of Buying SGD and investing in US Dollars

Step 1 : Borrow 10 Million SGD @ 24% p.a. Borrowing Rate

Step 2 : Convert the SGD to $ at today's spot rate of $0.43/SGD

= 10 Million * $0.43

= $4.3Million

Step 3 : Invest the US $ 4.3 Million for 60 days @ 7% p.a.

Step 4 : Get the principal amount & Earn interest from US $ after 60 days  

Interest earned= ($4.3 * 7%) * 60 /360

= $ 0.05016667 Million

Total Maturity Amount = Principal + Interest

= $4.3 million + $ 0.05016667 Million

= $4.35016667 Million

Step 5 : Convert the maturity amount received in $ to SGD at the expected spot rate prevailing on that day that is $0.42/SGD

= $4.35016667 Million / $0.42

= $ 10.3575396 Million

Step 6 : Repay the SGD borrowed with 60 days interest @24% p.a.

Interest to be paid = (SGD 10 Million * 24%) * 60/360

= SGD 0.4 Million

Total Repayment = Principal borrowed + interest

= SGD 10 Million + SGD 0.4 Million

= SGD 10.4 Million

Step 7 : Profit / Loss from the strategy

= Total amount received - Total amount paid

= Step 5 - Step 6

= SGD 10.3575396 Million - SGD 10.4 Million

= SGD -0.04246 Million

a)Since the amount repaid is more than the amount received, there is a loss in the strategy amounting to SGD 0.04246 Million

b) The firm should not pursue such strategy.

Foreign Currency 1/31/15

Appreciate/Depreciate

(1/31/15 to 4/16/18)

Working Value of Euro on 4/16/18 Did the Euro appreciate or depreciate against foreign currency British Pound Euro 1.3303 -13% 1.3303 - 0.172939 Euro 1.1574 Appreciate US Dollar Euro 0.8851 -8.40% 0.8851-0.0743 Euro 0.8107 Appreciate Swiss Franc Euro 0.9600 -12.32% 0.96 - 0.1183 Euro 0.8417 Appreciate Japanese Yen Euro 0.0075 0.53% 0.0075 + 0.00003 Euro 0.00754 Depreciate Chinese Yuan Euro 0.1433 -10.19% 0.1433 - 0.0146 Euro 0.1287 Appreciate

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