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53. Discount Rates A financial manager has determined that the appropriate discount rate
for a foreign project is 16 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 4 percent and 8
percent, respectively.
54. Discount Rates A financial manager has determined that the appropriate discount rate
for a foreign project is 15 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 8 percent and 4
percent, respectively.
55. Cross Rate Given these two exchange rates, $1 = 11.25 Mexican peso and $1 = €0.7521,
compute the cross rate between the Mexican peso and the euro. State this exchange rate in
pesos and in euros.
56. Cross Rate Given these two exchange rates, $1 = 1.3254 Australian dollars and $1 =
£0.5233, compute the cross rate between the Australian dollars and the pound. State this
exchange rate in Australian dollars and in pounds.
57. Exchange Rate Risk In the late 1990s, many East Asian currencies suddenly and
dramatically devalued. What is the percentage change in value of a $10 million investment in
Indonesia when the exchange rate changes from $1 = 3,000 rupiah to $1 = 10,000 rupiah?
58. Exchange Rate Risk In the late 1990s, many East Asian currencies suddenly and
dramatically devalued. What is the percentage change in value of a $75 million investment in
Indonesia when the exchange rate changes from $1 = 1,000 rupiah to $1 = 7,000 rupiah?
59. Exchange Rate Risk What is the percentage change in value of a $50 million investment
in Russia when the exchange rate changes from $1 = 7 rubles to $1 = 12 rubles?
60. Interest Rate Parity If the spot rate between the U.S. dollar and the New Zealand dollar
is $1 = NZD1.5215, and if the interest rate in the United States is 8 percent and in New Zealand
is 4 percent, then what should be the three-month forward exchange rate?
61. Interest Rate Parity Assume the spot rate between the U.S. dollar and the Taiwan dollar
is $1 = TWD32.456. If the interest rate in the United States is 4 percent and in Taiwan is 3
percent, then what should be the one-month forward exchange rate?
62. Purchasing Power Parity If the current spot rate between the U.S. dollar and the
Swedish krona was $1 = 7.5423 krona, and if the inflation rate in the United States was 5 percent
and in Sweden it was 2 percent, then what would be the expected spot rate in one year?
63. Purchasing Power Parity If the current spot rate between the U.S. dollar and the
Netherland Antilles guilder was $1 = 1.68 guilder, and if the inflation rate in the United States
was 1 percent and in the Netherland Antilles it was 6 percent, then what would be the expected
spot rate in one year?
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:
