Question

* Section 2 Calculations.
5pt each, 50 pts total. Show your work*!

- Suppose the dollar-pound exchange rate is quoted as $1.551 = £1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥119. What is the cross exchange rate, £ /¥? Round to 4 decimal places.
- Suppose the dealer provides this spot rate quote: S($|£) 1.8515 – 04. If you were to buy $1,000,000 worth of British pounds and then sell them five minutes later. Calculate the dealer profit in USD, to nearest cents, from your transactions.
- The ¥/$ spot exchange rate is $1.551/¥ and the 90-day forward premium is 5%. Calculate the 90-day forward price, work to 4 decimal places.
- Suppose a bank customer with ¥2,000 wishes to trade out of yen, ¥, and into pound, £. The dollar-pound exchange rate is quoted as $1.55 = £1.00 and the dollar-yen exchange rate is quoted at $1.00 = ¥120. How much £, to 2 decimal places, will the customer get?
- Suppose you observe a spot exchange rate of $1.050/€. If interest rates are 5% APR in the U.S. and 3% APR in the Euro zone then, under IRP, what is the no-arbitrage 1-year forward rate, $ /€? Round to 4 decimal places.

Answer #1

The cross exchange rate = $ / pound * yen / $

= 1.551 *119

= YEN 184.5690 / POUND

Dealers profit = 1000000 / ( 1.8519 - 1.8515)

= $2,500,000

90 days forward price = 1.551 *1.05 = $1.6286/ YEN

We need to find out the yen /pound rate

Cross exchange rate = 120*1.55 = YEN 186 PER POUND

Bank customer will get amount = 2000 / 186 = 10.75 Pounds

IRP is given by the formula ,

F = S * ( 1 + i (price currency) / [ 1 + i (base currency)

= 1.050 * 1.05/1.03

= $ 1.0704 / euro.

Section 2 Calculations. 5pt each, 50 pts total. Show
your work!
Suppose, the spot exchange rate is Euro €1.00 = $1.50 and the
rates of inflation expected to prevail for the next year in the
U.S. is 2% and 1% in the euro zone. Under the PPP, what is the
one-year forward rate, €1 = $_________, that should prevail, round
to 4 decimal places?
Yesterday, you entered into a futures contract to buy Euro
62,500 at $1.5500 per Euro. Your...

Suppose the Japanese yen exchange rate is ¥75 = $1, and the
British pound exchange rate is £1 = $1.54.
a. What is the cross-rate in terms of yen per pound? (Round your
answer to 2 decimal places, e.g., 32.16.)
Cross-rate ¥/£
b. Suppose the cross-rate is ¥120 = £1. What is the arbitrage
profit per dollar used? (Do not round intermediate calculations and
round your answer to 4 decimal places, e.g., 32.1616.)
Arbitrage profit $

3. Trading in foreign exchange
What are spot rates and forward rates?
Suppose you open the newspaper today and observe the following
indirect exchange rate quotations for the British pound:
Spot Exchange Rates
Forward Exchange Rates
30 Days
60 Days
90 Days
British pound (pound / dollar)
0.5415
0.5433
0.5445
0.5467
The British pound is selling at a in the forward
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Suppose you make a £ 600,000 sale to a British customer who has
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The current dollar-pound exchange rate is $1.50 to
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year, assuming the exchange rate remains at $1.50 to
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PLEASE SHOW ALL WORK AND BE THOROUGH

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USD/Chinese Yuan = 5.817
What is the Australian Dollar/Chinese Yuan cross rate? Enter
your answer rounded off to THREE decimal points.
2. Suppose the exchange rate for the Swiss Franc is
quoted as SF 1.10 in the spot market and SF 0.97 in the 90-day
forward market. Is the dollar selling at a premium or a discount
relative to the franc? PREMIUM OR DISCOUNT
3. Suppose the exchange rate between U.S....

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1. What is the exchange rate between the Swiss Franc (CHF) and
the dollar?
2. How many South African Rands (ZAR) can you buy with $500?
3. If you purchase New Zealand Dollar (NZD) 50,000 of supplies
from New Zealandhow much will this cost in US$ today?
4. In the above problem what can you do if you do not have to
pay for 30 days and you wanted to hedge your position? =
______________________________
What will it cost...

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market. 6-month Canadian securities have an annualized return of 6%
(and thus a 6-month periodic return of 3%). 6-month U.S. securities
have an annualized return of 6.5% and a periodic return of 3.25%.
If interest rate parity holds, what is the U.S. dollar-Canadian
dollar exchange rate in the 180-day forward market? Enter your
answer rounded to four decimal places. For example, if your answer
is 12.34567 then enter as...

Suppose the spot exchange rate for the Canadian dollar is
Can$1.15 and the six-month forward rate is Can$1.17.
a.
Which is worth more, a U.S. dollar or a Canadian dollar?
b.
Assuming absolute PPP holds, what is the cost in the United
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(Round your answer to 3 decimal places, e.g.,
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c.
Is the U.S. dollar selling at a premium or a discount relative
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Suppose the spot exchange rate for the Canadian
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a.
Which is worth more, a U.S. dollar or a Canadian dollar?
b.
Assuming absolute PPP holds, what is the cost in the United
States of an Elkhead beer if the price in Canada is Can$2.89?
(Do not round intermediate calculations and round your
answer to 2 decimal places, e.g., 32.16.)
c.
Is the U.S. dollar selling at a premium or a...

Suppose the spot
exchange rate for the Canadian dollar is Can$1.04 and the six-month
forward rate is Can$1.06.
a.
Which is worth more, a U.S. dollar or a Canadian dollar?
Canadian dollar
U.S. dollar
b.
Assuming absolute PPP holds, what is the cost in the United States
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(Enter your answer as directed, but do not round
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