Assumptions Rate Values
Initial spot rate, 1999 (Sucre/$) S1 5,000
Ending spot rate, 1999 (Sucre/$) S2 25,000
Calculation of percentage change:
Percentage change in the sucre versus the dollar -80.00%
Percent change = ( S1 – S2 ) ÷ ( S2 )
Problem 9.1 Ecuadorian Hyper-Inflation
The Ecuadorian sucre (S) suffered from hyper-inflationary forces throughout 1999. Its value
moved from S5,000/$ to S25,000/$. What was the percentage change in its value?
a. January 1980 – December 1985
b. January 1986 – December 1991
The following values are taken from the graph.
Change in the value
Starting Value Ending Value of the loonie
Time Period (C$/US$) (C$/US$) (percent)
January 1980 – January 1986 1.16 1.41 -17.7%
January 1986 – October 1991 1.41 1.13 24.8%
October 1991 – December 2001 1.13 1.60 -29.4%
October 2001 – April 2011 1.60 0.96 66.7%
April 2011 – January 2015 0.96 1.25 -23.2%
Percent change = (Starting Value – Ending Value ) / (Ending Value)
The Canadian dollar’s value against the U.S. dollar has seen some significant changes over recent history. Using the following
graph of the C$/US$ exchange rate for the 30 year period between 1980 and end-of-year 2010 to estimate the percentage change in
the Canadian dollar’s value (its affectionately known as the “loonie”) versus the dollar for the following periods.
Problem 9.2 Canadian Loonie
The ‘spike’ in the Loonie in 2008-2009, was dramatic, but was considered by many a nervous reaction to the financial crisis which
was largely experienced in the United States at the time, and not in Canada.
Problem 9.3 Nigerian naira Floated
On Friday June 17, 2016, the Central Bank of Nigeria (CBN) abandoned the Nigerian naira’s (NGN or ₦) fixed exchange
rate and allowed the currency to float. Previously fixed against the U.S. dollar at NGN 196.50 = 1.00 USD, the naira
closed at NGN 279.50/USD on Monday June 20, the first day of trading following the float. The naira quickly quickly
floated (sunk) to NGN 324.50/USD by August 18. Similarly, the naira fell from NGN 221.2001 = 1.00 EUR
toNGN316.7294 /EUR on June 20, and NGN 347.7721/EUR on August 18.
Assumptions Values
Spot rate, February 20, 2001 (TL/$) 68,000
Turkish government announces a devaluation of: -20.00%
Spot rate, February 24, 2001 (TL/$) 100,000
a. What was the exchange rate after devaluation?
Spot rate after devaluation 85,000
Check calculation: percentage change in values -20.0%
b. What was percentage change after falling to TL100,000/$?
Percentage change from initial value -32.0%
Percentage change from “devalued” value -15.0%
Problem 9.4 Turkish Lira Devaluation
The Turkish lira (TL) was officially devalued by the Turkish government in February 2001
during a severe political and economic crisis. The Turkish government announced on February
21st that the lira would be devalued by 20%. The spot exchange rate on February 20th was
TL68,000/$.
“Eye-balled“
Date Values
February 1st (Ps/$) 2.00
February 28th (Ps/$) 2.20
Percent change -9.09%
If peso continued to fall at same rate for 1 month:
March 1, 2002 (Ps/$) 2.20
Percent change -9.09%
March 30, 2002 (Ps/$) 2.42
Problem 9.5 Argentine Peso’s Anguish
As illustrated in the graph, the Argentine peso moved from its fixed exchange rate of Ps1.00/$ to over Ps2.00/$ in a matter of days in early January 2002. After a brief period of high volatility,
the peso’s value appeared to settle down into a range varying between 2.0 and 2.5 pesos per dollar. If you were forecasting the Argentine peso further into the future, to March 30, 2002, how
would you use the information in the graphic — the value of the peso freely-floating in the weeks following devaluation — to forecast its future value?
The period immediately following the peso’s devaluation was highly volatile and a period of transition. Most forecasters would view the February period as a period in which the new
exchange rate is beginning to “stabilize” in its trading.
Assumptions Rate Values
Opening spot rate, July 2, 1997 (Bt/$) S1 25.00
Closing spot rate, July 2, 1997 (Bt/$) S2 29.00
Calculation of percentage change:
Percentage change in the baht versus the dollar -13.79%
Percent change = ( S1 – S2 ) ÷ ( S2)
Problem 9.6 Brokedown Palace
The Thai baht (THB) was devalued by the Thai government from THB25/$ to THB29/$ on
July 2, 1997. What was the percentage devaluation of the baht?
Assumptions Values
Spot rate, Thursday, January 24, 2008, R$/$ 1.80
Spot rate, Monday, January 26, 2009, R$/$ 2.39
Calculation percentage appreciation or depreciation
Percentage change in the real versus the dollar -24.69%
Because the real fell in value: Depreciation
Percent change = ( S1 – S2 ) ÷ ( S2 )
Problem 9.7 Brazilian Reais Carnival
The Brazilian reais’ (BRL or R$) value was BRL 1.80 to 1.00 USD on Thursday
January 24, 2008, then plunged in value to BRL 2.39 to 1.00 USd on January 26, 2009.
What was the percentage change in its value?
a. What is the value of Mikhail’s portfolio as measured in Russian rubles?
b. What is the value of Mikhail’s portfolio as measured in Swiss francs?
c. What is the value of Mikhail’s portfolio as measured in U.S. dollars?
d. Which currency demonstrated the greatest fluctuations in total value over the six dates?
Mikhail’s balances by currency: (in millions)
US dollars USD 200
Swiss francs CHF 150
Russian rubles RUB 1,200
Exchange Rates Nov 7, 2013 Nov 7, 2014 Dec 4, 2014 Dec 16, 2014 Dec 24, 2014 Jan 16, 2015
Russian rubles per Swiss franc 35.286 48.252 56.249 70.285 55.362 76.639
Russian rubles per US dollar 32.408 46.730 54.416 67.509 54.619 65.071
US dollars per Swiss franc 1.0888 1.0326 1.0337 1.0411 1.0136 1.1778
a. What is the value of Mikhail’s portfolio as measured in Russian rubles?
Portfolio Value as Measured in Rubles Nov 7, 2013 Nov 7, 2014 Dec 4, 2014 Dec 16, 2014 Dec 24, 2014 Jan 16, 2015
Russian ruble account balance 1,200 1,200 1,200 1,200 1,200 1,200
Swiss franc account balance 5,293 7,238 8,437 10,543 8,304 11,496
U.S. dollar account balance 6,482 9,346 10,883 13,502 10,924 13,014
Total of Three Accounts 12,975 17,784 20,521 25,245 20,428 25,710
b. What is the value of Mikhail’s portfolio as measured in Swiss francs?
Portfolio Value as Measured in francs Nov 7, 2013 Nov 7, 2014 Dec 4, 2014 Dec 16, 2014 Dec 24, 2014 Jan 16, 2015
Russian ruble account balance 34 25 21 17 22 16
Swiss franc account balance 150 150 150 150 150 150
U.S. dollar account balance 184 194 193 192 197 170
Total of Three Accounts 368 369 365 359 369 335
c. What is the value of Mikhail’s portfolio as measured in U.S. dollars?
Portfolio Value as Measured in dollars Nov 7, 2013 Nov 7, 2014 Dec 4, 2014 Dec 16, 2014 Dec 24, 2014 Jan 16, 2015
Russian ruble account balance 37 26 22 18 22 18
Swiss franc account balance 163 155 155 156 152 177
U.S. dollar account balance 200 200 200 200 200 200
Total of Three Accounts 400 381 377 374 374 395
d. Which currency demonstrated the greatest fluctuations in total value over the six dates?
Problem 9.8 Mikhail Khorodovsky’s Dilemma
Mikhail Khodorkovsky was one of the infamous Russian oligarchs, accumulating billions of dollars in wealth in the mid-1990s with the fall of the Soviet
Union. But in 2003 he had been imprisoned by the Russian state for a decade for tax evasion. Upon his release from prison in 2013 he had taken up
residence in Switzerland – with most of his money.
In November 2014 Mikhail held a portfolio of USD 200 million and CHF 150 million in Swiss banks, in addition to accounts in Russia still holding RUB
1.2 billion. Using the exchange rate table, answer the following:
Exchange Rates Nov 7, 2013 Nov 7, 2014 Dec 4, 2014 Dec 16, 2014 Dec 24, 2014 Jan 16, 2015
Russian rubles per Swiss franc 35.286 48.252 56.249 70.285 55.362 76.639
Russian rubles per US dollar 32.408 46.730 54.416 67.509 54.619 65.071
US dollars per Swiss franc 1.0888 1.0326 1.0337 1.0411 1.0136 1.1778
Percentage Change Nov 7, 2013 Nov 7, 2014 Dec 4, 2014 Dec 16, 2014 Dec 24, 2014 Jan 16, 2015
Ruble against the Swiss franc -26.9% -14.2% -20.0% 27.0% -27.8%
Ruble aginst the U.S. dollar -30.6% -14.1% -19.4% 23.6% -16.1%
11/7/14 – 1/16/14
Ruble vs Swiss franc, period -37.0%
Ruble vs US dollar, period -28.2%
Problem 9.9 Trepak — The Russian Dance
Calculate the percentage change in the value of the Ruble for the three different crossrates shown for the six datesbelow. Did the ruble fall further against
the U.S. dollar or the Swiss franc?
The Russian ruble clearly fell further against the Swiss franc than it did the U.S.
dollar. It is more evident by simply looking at the percentage change from Nov
2014 through Jan 2015.
a. BP’s dividend received in USD in July 2014 Values
Rosneft dividend to BP (July 2014) in Russian rubles RUB 24,000,000,000.00
Spot rate, July 2014, RUB = 1 USD 34.78
USD 690,051,753.88
b. BP’s dividend received in USD in July 2015? Values
Rosneft dividend to BP in Russian rubles RUB 24,000,000,000.00
Spot rate, July 2015, RUB = 1 USD 75.00
USD 320,000,000.00
c. If Rosneft suffers from Russian recession?
c. If the combination of Western sanctions against Russia and lower global oil prices truly sent the
Russian economy into recession, and the spot rate was RUB 75 = 1.00 USD in July 2015, what might
BP’s dividend be in July 2015?
BP’s dividend could very well be zero in 2015 if the Russian economy worsened in the first half of the
year, and Rosneft’s profitability was destroyed from economic conditions, sanctions, and the fall of the
ruble.
Even if Rosneft did manage to achieve a positive level of profit in 2015, given its sizeable debt payment
obligation, it could choose to not pay a dividend in order to preserve cash flow for debt service.
Finally, at least in the early spring of 2015, there was a real possibility that the Russian government could
institute capital controls that would prevent the payment of the dividend to a foreign stockholder like BP.
Capital controls were a real possibility because of the plummeting value of the ruble.
Problem 9.10 BP and Rosneft 2015
BP (UK) and Rosneft (Russia) had severed a long-term joint venture in 2013, with Rosneft buying BP
out with $55 billion in cash and a 20% interest (equity interest) in Rosneft itself. Rosneft financed a large
part of the buyout by borrowing heavily. The following year, in July 2014, BP received a dividend on its
ownership interest in Rosneft of RUB 24 billion.
But Rosneft’s performance had been declining, as was the Russian ruble. The winter of 2014-2015 in
Europe was a relatively mild one, and Europe’s purchases of Rosneft’s natural gas had fallen as had the
price of natural gas. Rosneft’s total sales were down, and the ruble had clearly fallen dramatically. And to
add debt to injury, Rosneft was due to make a payment of USD 19.5 billion in 2015 on its debt from the
BP buyout.
a. Assuming a spot rate of RUB 34.78 = 1.00 USD in July 2014, how much was the dividend paid to BP
in U.S. dollars?
b. If Rosneft were to pay the same dividend to BP in July 2015, and the spot rate at that time was RUB
75 = 1.00 USD, what would BP receive in U.S. dollars?
Industrial Unemployment
Forecast Forecast Production Rate
Country Latest Qtr Qtr* 2007e 2008e Recent Qtr Latest
Australia 4.3% 3.8% 4.1% 3.5% 4.6% 4.2%
Japan 1.6% -1.2% 2.0% 1.9% 4.3% 3.8%
United States 1.9% 3.8% 2.0% 2.2% 1.9% 4.7%
Forecast 3-month 1-yr Govt
Country Year Ago Latest 2007e Latest Latest
Australia 4.0% 2.1% 2.4% 6.90% 6.23%
Japan 0.9% -0.2% 0.0% 0.73% 1.65%
United States 2.1% 2.8% 2.8% 4.72% 4.54%
Trade Balance
Last 12 mos Last 12 mos Forecast 07
Country (billion $) (billion $) (% of GDP) Oct 17th Year Ago
Australia -13.0 -$47.0 -5.7% 1.12 1.33
Japan 98.1 $197.5 4.6% 117 119
United States -810.7 -$793.2 -5.6% 1.00 1.00
Source: Data abstracted from The Economist , October 20, 2007, print edition. Unless otherwise noted, percentages are percentage changes over one-
year. Rec Qtr = recent quarter. Values for 2007e are estimates or forecasts.
Curent Account
Current Units (per US$)
Forecasting the Pan-Pacific Pyramid: Australia, Japan & The United States
Gross Domestic Product
Consumer Prices
Interest Rates
Industrial Unemployment
Forecast Forecast Production Rate
Country Latest Qtr Qtr* 2007e 2008e Recent Qtr Latest
Australia 4.3% 3.8% 4.1% 3.5% 4.6% 4.2%
Japan 1.6% -1.2% 2.0% 1.9% 4.3% 3.8%
United States 1.9% 3.8% 2.0% 2.2% 1.9% 4.7%
Forecast 3-month 1-yr Govt Bond
Country Year Ago Latest 2007e Latest Latest
Australia 4.0% 2.1% 2.4% 6.90% 6.23%
Japan 0.9% -0.2% 0.0% 0.73% 1.65%
United States 2.1% 2.8% 2.8% 4.72% 4.54%
Trade Balance
Last 12 mos Last 12 mos Forecast 07
Country (billion $) (billion $) (% of GDP) Oct 17th Year Ago
Australia -13.0 -$47.0 -5.7% 1.12 1.33
Japan 98.1 $197.5 4.6% 117 119
United States -810.7 -$793.2 -5.6% 1.00 1.00
11. Current spot rates. What are the current spot exchange rates for the following cross rates?
a. Japanese yen/US dollar exchange rate = ‘¥/$ 117.00
b. Japanese yen/Australian dollar exchange rate = ¥/$ / A$/$ 104.46
c. Australian dollar/US dollar exchange rate = A$/$ 1.1200
a. Japanese yen/US dollar in 1 year = Spot (¥/$) x (1 + ¥–inflation) / (1 + $-inflation) 113.81
b. Japanese yen/Australian dollar in 1 year = Spot (¥/A$) x (1 + ¥-inflation) / (1 + A$-inflation) 102.02
c. Australian dollar/US dollar in 1 year = Spot (A$/$) x (1 + A$-inflation) / (1 + $ inflation) 1.1156
a. Japanese yen/US dollar in 1 year = Spot (¥/$) x (1 + i-¥) / (1 + i-$) 113.77
b. Japanese yen/Australian dollar in 1 year = Spot (¥/A$) x (1 + i-¥) / (1 + i-A$) 99.96
c. Australian dollar/US dollar in 1 year = Spot (A$/$) x (1 + i-A$) / (1 + i-$) 1.1381
a. Australian dollar “real” rate = (1 + nominal) / (1 + A$ consumer price change) – 1 3.74%
b. Japanese yen “real” rate = (1 + nominal) / (1 + ¥ consumer price change) – 1 1.65%
c. US dollar “real” rate = (1 + nominal) / (1 + $ consumer price change) – 1 1.69%
Problems 9.11-9.14 Forecasting the Pan-Pacific Pyramid
Gross Domestic Product
Consumer Prices
Interest Rates
13. International Fischer forecasts. Asssuming International Fisher – one version of Purchasing Power Parity – applies to the coming
year, forecast the following future spot exchange rates using the government bond rates for the respective country currencies:
14. Implied real interest rates. If the nominal interest rate is the government bond rate, and the current change in consumer prices is
used as expected inflation, calculate the implied “real” rates of interest by currency.
Current Account
Current Units (per US$)
Source: Data abstracted from The Economist, October 20, 2007, print edition. Unless otherwise noted, percentages are percentage changes over one-
year. Rec Qtr = recent quarter. Values for 2007e are estimates or forecasts.
12. Purchasing power parity forecasts. Assuming purchasing power parity, and assuming that the forecasted change in consumer
prices is a good proxy of predicted inflation, forecast the following cross rates:
Industrial Unemployment
Forecast Forecast Production Rate
Country Latest Qtr Qtr* 2007e 2008e Recent Qtr Latest
Australia 4.3% 3.8% 4.1% 3.5% 4.6% 4.2%
Japan 1.6% -1.2% 2.0% 1.9% 4.3% 3.8%
United States 1.9% 3.8% 2.0% 2.2% 1.9% 4.7%
Forecast 3-month 1-yr Govt Bond
Country Year Ago Latest 2007e Latest Latest
Australia 4.0% 2.1% 2.4% 6.90% 6.23%
Japan 0.9% -0.2% 0.0% 0.73% 1.65%
United States 2.1% 2.8% 2.8% 4.72% 4.54%
Trade Balance
Last 12 mos Last 12 mos Forecast 07
Country (billion $) (billion $) (% of GDP) Oct 17th Year Ago
Australia -13.0 -$47.0 -5.7% 1.12 1.33
Japan 98.1 $197.5 4.6% 117 119
United States -810.7 -$793.2 -5.6% 1.00 1.00
15. Forward rates. Using the spot rates and three-month interest rates above, calculate the 90-day forward rates for:
a. Japanese yen/US dollar exchange rate = Spot (¥/$) x (1 + i¥ 3 month) / (1 + i$ 3 month) 115.85
b. Japanese yen/Australian dollar exchange rate = Spot (¥/A$) x (1 + i¥ 3 month) / (1 + iA$ 3 month) 102.88
c. Australian dollar/US dollar exchange rate = Spot (A$/$) x (1 + A$ 3 month) / (1 + i$ 3 month) 1.1260
Note: All interest rates need to be adjusted for a 90 day period of a 360 day year for the calculation.
Australia’s Misery Index 6.60% Forecast spot = Spot x ( 1 + Misery-1) / ( 1 + Misery-2)
Japan’s Misery Index 3.80%
United States’s Misery Index 7.50% Starting Forecast
Spot Rate Spot Rate
a. Japanese yen/US dollar exchange rate in 1 year 115.85 111.86
b. Japanese yen/Australian dollar exchange rate in 1 year 102.88 100.18
c. Australian dollar/US dollar exchange rate in 1 year 1.1260 1.1166
16. Real economic activity and misery. Calculate the country’s Misery Index (unemployment + inflation) and then use it like interest
differentials to forecast the future spot exchange rate, one year into the future.
Current Account
Current Units (per US$)
Source: Data abstracted from The Economist , October 20, 2007, print edition. Unless otherwise noted, percentages are percentage changes over one-
year. Rec Qtr = recent quarter. Values for 2007e are estimates or forecasts.
Problems 9.15-9.16 Forecasting the Pan-Pacific Pyramid
Gross Domestic Product
Consumer Prices
Interest Rates
Change in the
Starting Value Ending Value value of the yen
Time Period (¥/€) (¥/€)(percent)
a. Jan 1999 – Sept 2000 132 92 43.5%
b. Sept 2000 – Sept 2008 92 168 -45.2%
c. Sept 2008 – Sept 2012 168 96 75.0%
d. Sept 2012 – Jan 2015 96 146 -34.2%
Problem 9.17 Yen-Euro Cross
Percent change = ( S1 – S2 ) ÷ ( S2 )
The Japanese yen-euro cross rate is one of the more significant currency values for global trade and commerce.
The graphic at below shows this cross-rate from when the euro was launched in January 1999 through the January
of 2015. Estimate the change in the value of the yen over the following three periods of change.
Source: PACIFIC Exchange Rates © 2010 by Prof. Werner Antweiler, University of British Columbia,
Vancouver BC, Canada.
Monthly Average Exchange Rates:
Japanese Yen per European Euro
© 2015 by Prof. Werner Antweiler, Universit