Question

You have just landed in the airport of Frankfurt, Germany, ready to embark on the first leg of your European holiday. Having arrived from the US, you have USD $5,000, that you wish to exchange into the local currency. You are also surprised to find a gift of JPY 30,000 that your parents have slipped into your luggage as additional spending money. You compare the exchange rates of the following dealers to obtain local currency:

Brauhaus FX	EUR/USD   1.21/1.13	EUR/JPY 157/141	GBP/EUR 1.14/1.08	EUR/AUD 1.82/1.73
Deutschland FX	EUR/AUD 1.745/1.812	EUR/USD 1.144/1.221	GBP/EUR 1.088/1.147	EUR/JPY 143 /160
Wunderbar FX	GBP/EUR 1.08/1.15	EUR/JPY 147/159	EUR/AUD 1.74/1.80	EUR/USD 1.16/1.23

Trying to jog your memory about what you learned about foreign exchange in BFF1001, you focus on the EUR/AUD and EUR/USD rate for Wunderbar FX and conclude that these are a (direct and direct, indirect and indirect, indirect and direct, direct and indirect) quote respectively.

The best dealer to convert your USD is ( Wunderbar FX, Deutschland FX, Brauhaus FX) and you'll receive (EUR 4,152.23, EUR 5,132.23, EUR 4,132.23, EUR 4,112.23, EUR 4,122.23, EUR 4,142.23) . The best dealer to convert your JPY is (Wunderbar FX, Deutschland FX, Brauhaus FX) and you'll receive (EUR 209.79, EUR 212.76, EUR 191.08, EUR 210.76, EUR 187.50, EUR 204.08) .

Part B

As a New Zealand exporter of wool (priced in NZD) to the UK, an example of up-side foreign exchange risk is if the (NZD appreciates against the EUR, GBP depreciates against the NZD, NZD depreciates against the GBP, EUR depreciates against the NZD, NZD appreciates against the GBP) . If you are a UK importer of wool (priced in NZD) from New Zealand, an example of down-side foreign exchange risk is if (GBP appreciates against the NZD, NZD depreciates against the GBP, GBP depreciates against the NZD, EUR appreciates against the NZD, EUR depreciates against the NZD) .

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Answer 1

When exchange rate is expressed in terms of no. of units of domestic currency (Euro) per unit of foreign currency , it is called a direct quote

In both the quotes of Wunderbar FX, EUR/AUD and EUR/USD , the amount of foreign currency per unit of domestic currency is quoted . So these are both Indirect quotes (Indirect and Indirect)

Brauhaus FX will give 1 EUR for 1.21 USD

Deutschland FX will give 1 EURO for 1.221 USD

Wunderbar FX will give 1 EURO for 1.23 USD

So, the best dealer is Brauhaus FX to convert USD and to get 5000/1.21 = EUR 4132.23

Brauhaus FX will give 1 EUR for 157 JPY

Deutschland FX will give 1 EURO for 160 JPY

Wunderbar FX will give 1 EURO for 159 JPY

So, the best dealer is Brauhaus FX to convert JPY and to get 30000/157 = EUR 191.08