Question

a) Suppose in December 2016, we have $1.2483/£ (where £ is symbol of British pound) and in December 2017 we have $1.3395/£. Starting with $1 million, convert $1 million into British pound at December 2016 exchange rate, and then convert that amount of British pound back into US dollar at the December 2017 exchange rate. What is the difference between the initial $1 million in December 2016 and US dollar amount in December 2017?

b) Suppose dollar per one British pound is $1.51 and US dollar per one Canadian dollar is $0.97. What is the value of one British pound in Canadian dollar and what is the value of one Canadian dollar in British pound?

Answer 1

(a) Exchange Rate in Dec, 2016 = $ 1.2483 / £ . Exchange Rate in Dec, 2017 = $ 1.3395 / £. Amount to be converted = $ 1million

£ Value in Dec, 2016 Rates = 1000000 / 1.2483 = £ 801089.4817

$ Value in Dec, 2017 Rates = £ 801089.4817 x 1.3395 = $ 1073059.361

Difference between the two dollar values = 1073059.361 - 1000000 = $ 73059.361

(b) Exchange Rate 1 = ER 1 = $ 1.51 / £ and Exchange Rate 2 = ER 2 = 0.97 $ / C $

1 £ = $ 1.51 and 1 C $ = 0.97 $

1 $ = 1/0.97 = 1.03093 C $ and 1 $ = 1/1.51 = 0.66225 £

Therefore, 0.66225 £ = 1.03093 C $ and 1 £ = 1.03093 / 0.66225 = 1.55671 C $

and 1 C $ = 1 / 1.55671 = 0.64238 £