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Which of the following statements is NOT CORRECT?
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Question 26
A U.S.-based importer, Zarb Inc., makes a purchase of crystal
glassware from a firm in Switzerland for 39,960 Swiss francs, or
$24,000, at the spot rate of 1.665 francs per dollar. The terms of the
purchase are net 90 days, and the U.S. firm wants to cover this trade
payable with a forward market hedge to eliminate its exchange rate risk.
Suppose the firm completes a forward hedge at the 90-day forward rate
of 1.682 francs. If the spot rate in 90 days is actually 1.638 francs, how
much will the U.S. firm have saved or lost in U.S. dollars by hedging its
exchange rate exposure?
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Question 27
In Japan, 90-day securities have a 4% annualized return and 180-
day securities have a 5% annualized return. In the United States, 90-day
securities have a 4% annualized return and 180-day securities have an
annualized return of 4.5%. All securities are of equal risk, and Japanese
securities are denominated in terms of the Japanese yen. Assuming that
interest rate parity holds in all markets, which of the following
statements is most CORRECT?
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Question 28