Question

**3. The YTL/$ spot exchange rate is YTL1.72/$ and the
SF/$ is SF1.25/$. The YTL/SF cross exchange rate is:**

**4. The $/YTL spot exchange rate is $0.5814/YTL and the $/SF
is $0.80/SF. The YTL/SF cross exchange rate is:**

**5. The YTL/$ spot exchange rate is YTL1.72/$ and the $/SF
is $0.80/SF. The YTL/SF cross exchange rate is:**

**6. The €/$ spot exchange rate is €0.6/$ and the Yen/$ is
Yen89/$. What is the €/Yen cross exchange rate? What is the Yen/€
cross exchange rate?**

Answer #1

3. YTL/$ = 1.72, SF/$ = 1.25

So $/SF = 1 / (SF/$) = 1/1.25

YTL/SF = (YTL/$) x ($/SF) = (1.72) x (1/1.25) = 1.72/1.25 = YTL1.37

4. $/YTL = 0.5814 , $/SF= 0.80

So, YTL/$ = 1/($/YTL) = 1/0.5814

YTL/SF = (YTL/$) x ($/SF) = (1/0.5814) x (0.80) = 0.80 / 0.5814 = YTL1.37

5.YTL/$ = 1.72 , $/SF = 0.80

YTL/SF = (YTL/$) x ($/SF) = 1.72 x 0.80 = YTL1.37

6.€/$ = 0.6 , Yen/$ = 89

So, $/Yen = 1 / (Yen/$) = 1 / 89

€/Yen = (€/$) x ($/Yen) = (0.6) x ( 1/89) = 0.6 / 89 = € 0.0067

Yen / € = 1 / ( €/Yen) = 1 /(0.0067) = Yen149.25

Assume there is a direct cross market for GBP/Sf. Assume the
spot FX rates with the USD are 1.5 Sf/$ and 1.50 $/£.
What should be the direct cross-rate be for Sf/£?
If the direct cross-rate is 2.50 Sf/£, what three deals can you
do to lock in a risk free profit on 1 unit of the base currency?
Calculate the arbitrage profit.

Problem 17-01
Cross Rates
At today's spot exchange rates 1 U.S. dollar can be exchanged
for 9 Mexican pesos or for 111.77 Japanese yen. You have pesos that
you would like to exchange for yen. What is the cross rate between
the yen and the peso; that is, how many yen would you receive for
every peso exchanged? Round your answer to two decimal places.
yen per peso?

We know that the yen and the Swiss franc have a 100 yen/ sf 1
exchange rate, meaning one swiss franc buys 100 yen in the forward
ER market. If the swiss franc has an interest rate of -.06 and the
yen rate is -.02, what is the spot exchange rate for IPT (interest
parity theory) to be attained ? Show everything in yen terms and
franc terms. 2) If there is no equilibrium initially, will there be
equilibrium eventually?...

The spot rate for the Swiss Franc is $1.0550/SF and the one-year
forward rate is $1.0650/SF. The expected one year interest rates
are 6% p.a. for the US and 4% p.a. for Switzerland. Using the above
rates, can you engage in a covered interest rate arbitrage as an
American investor? Use either $1,000,000 or SF 1,000,000 as the
notational amount. Show any profits in dollars.

A.1)We know that the yen and the Swiss franc have a 100 yen/ SF
1 exchange rate, meaning one swiss franc buys 100 yen in the
forward ER market. If the Swiss franc has an interest rate of -.06
and the yen rate is -.02, what is the spot exchange rate for IPT
(interest parity theory) to be attained? Show everything in yen
terms and franc terms. 2) If there is no equilibrium initially,
will there be equilibrium eventually? If...

3) Suppose that the spot exchange rate S(¥/€) between the yen
and the euro is currently
¥110/€, the 1-year euro interest rate is 6% p.a., and the 1-year
yen interest rate is 3% p.a.
Which of the following statements is MOST likely to be true?
A. The high interest rate currency must sell at a forward premium
when priced in the low
interest rate currency to prevent covered interest arbitrage
Page 3 of 13
B. Real interest parity does not...

Cross Exchange Rate Assume Poland’s currency (the zloty) is worth
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the zloty with respect to yen? That is, how many yen equal a
zloty?

The spot exchange rate is ¥125 = $1. The U.S. discount rate is
10 percent; inflation over the next three years is 3 percent per
year in the U.S. and 2 percent per year in Japan. Calculate the
dollar NPV of this project.
Year 0 = -1,000,000 yen Year 1= 50,000 yen year 2 = 500,000 yen
Year 3= 500,000 yen

Assume the spot exchange rate is 106.90 Japanese yen per U.S.
dollar. If the inflation rate in the U.S. is expected to be 2% and
the inflation rate in Japan is 1% for the next two years, then
the:
exchange rate will increase.
exchange rate will double.
dollar will appreciate relative to the yen.
dollar will become more valuable.
Yen will strengthen against the dollar.

What has happened to the exchange rate value of the dollar in
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Analyze the next 4 questions.
1. Spot rate goes from $1.25/SFr to $1.3/SFr.
2. Spot rate goes from SFr 0.8/$ to SFr 0.77/$
3. Spot rate goes from $0.010/yen to $0.009/yen
4. Spot rate goes from 100 yen/$ to 111 yen/$

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