INTERNATIONAL FINANCE

International Finance Assignment

International Finance Assignment

A U.S. broker has posted the following quotes (in USD) for the share of an electronic firm:

Buying rate =100 and selling rate =110.

The exchange rates for one euro are: Buying (bid) $1.4550 and Selling (ask) = $1.4950 net.

Assume you are an investor living in Europe and answer the following questions:

How much will you pay in dollars if you buy 1000 shares of that firm? How much will you pay in euro?

Buying 1000 shares at $ 100 per share, paying in Dollars

100 * 1000 = 100000

= $ 100000

Buying 1000 shares at $ 100 per share, paying in Euros

100 * 1000 = 100000

= 100000 / 1.455

= € 68729 How much will you receive (dollars and euros) if you sell 1000 shares?

Selling 1000 shares at $ 110 per share, receiving in Dollars

110 * 1000 = 110000

= $ 110000

Selling 1000 shares at $ 110 per share, receiving in Euros

110 * 1000 = 110000

= 110000 / 1.455

= € 73579

What will be the total costs and net proceeds in each case (dollar and euros), if the broker charges a 0.2% commission for each transaction?

When Buying Shares

Transaction in Dollars

100000 x 0.2 % = $ 200

100000 + 200 = $ 100200

Transaction in Euros

68729 * 0.2 % = € 137

68729 + 137 = € 68866

When Selling Shares

Transaction in Dollars

110000 x 0.2 % = $ 220

110000 + 220 = $ 110220

Transaction in Euros

73579 * 0.2 % = € 147

73579 + 147 = € 73726

You are the manager of an American pension fund and decide, on January 5, to buy ten thousand shares of British Airways listed in London. You sell them on February 5. Here are the quotes that you can use:

January 5

British Airways share price (£): Buying = 3.50 and selling = 3.52

Exchange rate (dollars per pound): Buying =1.5000 and selling = 1.5040

February 5

British Airways share price (£): Buying = 3.81 and selling 3.83

Exchange rate (dollars per pound): Buying =1.4500 and selling = 1.4540

You must pay the U.K. broker a commission of 0.2% of the transaction value (on the purchase and on the sale).

What is your sterling rate of return on the operation?

Shares bought on Jan 5

10000 x 3.5

= £ 35000

Broker Commission

35000 x 0.2 % = £ 70

Total Cot when Buying Shares

35000 + 70 = £ 35070

Shares Sold on Feb 5

10000 x 3.83

= £ 38300

Broker Commission

38300 x 0.2 % = £ 76.6

Total Cost when Selling Shares

38300 + 76.6 = £ 38376.6

Profit

38376.6 - 35070 = £ 3306.6

Rate of Return

Profit / initial investment x 100

Rate of Return = 3306.6 / 35070 x 100

R = 9.4 %

What is your dollar rate of return on the operation?

Shares bought on Jan 5

10000 x 3.5

= £ 35000

Broker Commission

35000 x 0.2 % = £ 70

35000 + 70 = £ 35070

Selling Dollars to buy Pounds

35070 x 1.504

= $ 52745

Total Cost when Buying Shares

= $ 52745

Shares Sold on Feb 5

10000 x 3.83

= £ 38300

Broker Commission

38300 x 0.2 % = £ 76.6

38300 + ...