Strategy-AW653

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1. Forecast the outright value of DKK for next year on the basis of the relative purchasing power parity.
 

2. Forecast the outright value of DKK for next year on the basis of the international Fisher effect.
 

3. Forecast the outright value of DKK for next year on the basis of the unbiased theory of the forward rates.
 

4. If instead of entering into the real estate market, you decide to probe into arbitrage opportunities between the two markets, what is your risk-free profit or loss after one year if you borrow $5,600,000.00 in the US and transfer it to Denmark today? For simplicity, assume that the interest rates given above are for borrowing or investing. If you encounter a loss, indicate it by a negative sign; the template does not recognize parenthesis.
 

5. Based on the information given above, calculate how much the two markets may be in disequilibrium.
 

Hint: Use the fourth theory (interest rate parity). Express your answer in percent but drop the
percentage sign. If your answer is negative, enter its absolute value, i.e., drop the negative sign when
entering it into the template.
 
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6. In preparation for your vacation to the Americas, you withdrew EUR 2,000.00 in Frankfurt for your emergency expenses only. All other expenses, including day to day expenses, were covered on your credit cards. You converted this amount in its entirety, or its balances, on four occasions: once in South Florida into USD upon your arrival, twice in Mexico City (upon your arrival into MXN and immediately prior to your departure into USD), and finally in South Florida into EUR prior to your departure to Frankfurt. You were exposed to the following rates. Calculate your final position in EUR. You had no other transactions on this cash amount except currency conversions. The
conversion fees were zero in all instances.
 
7. You are managing thirty or so short-term rental apartments. Your aim is to maximize rental revenue. Very rarely do you hit the full capacity, except during Christmas holidays. Your leases (rentals) are often short term and they are calculated on a daily rate basis. Most of the leases are for seven to fifteen days, though you are open to any length of time beyond a minimum of three days. The rental elasticity is calculated to be around 1.8, though it does not stay constant. To maximize your revenue (select only one item and enter 1, 2, …4 in the template)
 

1. You increase your daily rates.
2. You lower your daily rates.
3. You do not change your rates at all.
4. The use of elasticity is completely irrelevant to rental revenue.
 

8. You borrowed $ 825,000.00 for six months in Miami, converted it immediately into MXN, and deposited in an interest bearing MXN account. Based on the following rates, calculate the outcome (loss or profit) of a CIA (covered interest arbitrage) on this amount. If a loss, indicate it by a negative sign. For simplicity, borrowing and lending rates are assumed to be the same.
 

a. Spot rate on MXN = MXN 13.35/USD
b. Six-month forward rate on MXN = MXN 13.42/USD
c. Interest rate on USD = 3.4 percent per annum.
d. Interest rate on MXN account = 5.8 percent per annum.
 

9. You bought CLP 2,595,000 (CLP = Chilean pesos) in a non-deliverable forward market (NDF) exactly six months ago when the spot rate was CLP 502.8/USD and the six month NDF forward rate was CLP 512.00/USD. Today the spot rate is CLP 574.36/USD and you just settled this purchase. Calculate the outcome (= profit or loss) of this activity. If a loss, indicate it by a negative sign.
 

10. Spot rate and 45 days forward rates on Turkish Lira (= TRY) are respectively, TRY 2.231/USD and TRY 2.456/USD. Calculate annual forward premium or discount on this currency from the US citizen’s perspectives. If negative, use a negative sign.
 
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