64.
Purchasing Power Parity If the current spot rate between the U.S. dollar and the
Netherland Antilles guilder was $1 = 1.54 guilder, and if the inflation rate in the United
States was 2 percent and in the Netherland Antilles it was 8 percent, then what would be
the expected spot rate in one year?
65.
Exchange Rate Risk A U.S. firm is expecting cash flows of 15 million Mexican pesos and
20 million Indian rupees. The current spot exchange rates are: $1 = 11.501 pesos and $1 =
45.525 rupees. If these cash flows are not received for one year and the expected spot
rates at that time will be $1 = 11.265 pesos and $1 = 45.005 rupees, then what is the
difference in dollars received that was caused by the delay?
66.
Exchange Rate Risk A U.S. firm is expecting cash flows of 5 million Mexican pesos and 10
million Indian rupees. The current spot exchange rates are: $1 = 11.255 pesos and $1 =
44.864 rupees. If these cash flows are not received for one year and the expected spot
rates at that time will be $1 = 10.080 pesos and $1 = 44.125 rupees, then what is the
difference in dollars received that was caused by the delay?
67.
Exchange Rate Risk A U.S. firm is expecting to pay cash flows of 20 million Egyptian
pounds and 25 million Qatar rials. The current spot exchange rates are: $1 = 5.829 pounds
and $1 = 3.645 rials. If these cash flows are delayed one year and the expected spot rates
at that time will be $1 = 5.895 pounds and $1 = 3.899 rials, then what is the difference in
dollars paid that was caused by the delay?
68.
Triangular Arbitrage Assume the U.S. dollar spot exchange rate with the Canadian dollar
is $1 = CA$1.125. The U.S. dollar and Swiss Franc exchange rate is $1 = 1.235. If the cross
rate between the franc and Canadian dollar is 1 franc = CA$0.9820, then show that an
arbitrage is possible. What positions should be taken to profit from the mispricing?
69.
Triangular Arbitrage The U.S. dollar spot exchange rate with the Australian dollar is $1 =
AU$1.2835. The U.S. dollar and euro exchange rate is $1 = €0.7605. If the cross-rate
between the euro and Australian dollar is €1 = AU$1.610 then show that an arbitrage is
possible. What positions should be taken to profit from the mispricing?
70.
Triangular Arbitrage The U.S. dollar spot exchange rate with the Australian dollar is $1 =
AU$1.2219. The U.S. dollar and euro exchange rate is $1 = €0.7595. If the cross-rate
between the euro and Australian dollar is €1 = AU$1.575 then show that an arbitrage is
possible. What positions should be taken to profit from the mispricing?
71.
Convert the following direct quote to dollar indirect quote: 1 Danish krone = $0.1991.
72.
Convert the following direct quote to dollar indirect quote: 1 Indian rupee = $0.2110.
73.
Convert each of the following direct quotes to dollar indirect quotes:
• 1 Korean won = $0.001556
• 1 Malaysian ringgit = $0.3419
• 1 Thai baht = $0.03999
$1 equals:
74.
Convert each of the following indirect quotes to dollar direct quotes:
• $1 = 805 Vietnam dong
• $1 = 2,349.6 Venezuelan bolivar
• $1 = 7.0523 South African rand
$1 equals:
75.
Convert each of the following indirect quotes to dollar direct quotes:
• $1 = 3.05 Saudi Arabian riyal
• $1 = 41.45 Philippine peso
• $1 = 0.52 Latvian lat
$1 equals:
76.
Convert each of the following indirect quotes to dollar direct quotes:
• $1 = 3.95 Saudi Arabian riyal
• $1 = 41.45 Philippine peso
• $1 = 0.58 Latvian lat
$1 equals:
77.
Compute the amount of each foreign currency that can be purchased for $5,000:
a. 1 Danish krone = $0.18
b. 1 Indian rupee = $0.15
c. 1 Israeli shekel = $0.37
$5,000 equals:
78.
Compute the number of dollars that can be bought with 2 million of each foreign currency
units:
• $1 = 19,005 Vietnam dong
• $1 = 2,949.6 Venezuelan bolivar
• $1 = 7.9523 South African rand
79.
Compute the number of dollars that can be bought with 1 million of each foreign currency
units:
• $1 = 3.9 Saudi Arabian riyal
• $1 = 0.52 Philippine peso
• $1 = 0.75 Latvian lat
80.
If the price of silver in England is £6.25 per ounce, what is the expected price of silver in
the United States if the spot exchange rate is $1 = £0.55?
81.
If the price of copper in Europe is €2.72 per ounce, what is the expected price of copper in
the United States if the spot exchange rate is $1 = €0.8623?
82.
A financial manager has determined that the appropriate discount rate for a foreign
project is 17 percent. However, that discount rate applies in the United States using
dollars. What discount rate should be used in the foreign country using the foreign
currency? The inflation rate in the United States and in the foreign country is expected to
be 3 percent and 8 percent, respectively.
83.
Given these two exchange rates, $1 = 12.5 Mexican peso and $1 = €0.75, compute the
cross-rate between the Mexican peso and the euro. State this exchange rate in pesos.
84.
Given these two exchange rates, $1 = 1.32 Australian dollars and $1 = £0.56, compute the
cross-rate between the Australian dollar and the pound. State this exchange rate in
Australian dollars and in pounds.
85.
The Russian financial crisis of 1998 caused Russia’s currency to be dramatically devalued.
What is the percentage change in value of a $100 million investment in Russia when the
exchange rate changes from $1 = 6 rubles to $1 = 25 rubles?
86.
The spot rate between the U.S. dollar and the New Zealand dollar is $1 = NZD1.6607. If
the interest rate in the United States is 6 percent and in New Zealand is 4 percent, then
what should be the three-month forward exchange rate?
87.
The current spot rate between the U.S. dollar and the Swedish krona is $1 = 7.5500 krona.
If the inflation rate in the United States is 4 percent and in Sweden is 1 percent, then what
is the expected spot rate in one year?