Assumptions Values
Buy a US dollar in Brussels for (€/$)
0.7600
Problem 2.1 Chantal DuBois in Brussels
Chantal DuBois lives in Brussels. She can buy a U.S. dollar for €0.7600.
Christopher Keller, living in New York City, can buy a euro for $1.3200.
What is the foreign exchange rate between the dollar and the euro?
Assumptions Values
Spot rate on Mexican peso (pesos/US$)
12.4200
Problem 2.2 Quartzite Inc
The spot rate for Mexican pesos is Ps12.42/$. If U.S.-based company Quartzite
Inc. buys Ps500,000 spot from its bank on Monday, how much must Quartzite
pay and on what date?
Price of an ounce of gold in French francs (FF/oz)
410.00
What is the implied French franc/US dollar exchange rate? 19.84
Gold Standard
Problem 2.4 Golden Rule
Under the gold standard, the price of an ounce of gold in U.S. dollars was $20.67, while the price
of that same ounce in British pounds was £3.7683. What would the exchange rate between the
dollar and the pound be if the U.S. dollar price had been $42.00 per ounce?
Assumptions Values
Original spot rate, Japanese yen/British pound
197.00
Problem 2.5 Toyota Exports to the United Kingdom
Toyota manufactures most of the vehicles it sells in the United Kingdom in Japan.
The base platform for the Toyota Tundra truck line is ¥1,650,000. The spot rate of
the Japanese yen against the British pound has recently moved from ¥197/£ to
¥190/£. How does this change the price of the Tundra to Toyota’s British subsidiary
in British pounds?
190.00
Assumptions Values
Canadian dollar list price of book (C$)
26.33
Problem 2.6 Loonie Parity
If the price of former Chairman of the U.S. Federal Reserve Alan Greenspan’s
memoir, “The Age of Turbulence,” is listed on Amazon.ca as C$26.33, but costs just
US$23.10 on Amazon.com, what exchange rate does that imply between the two
currencies?
23.10
Calculation of Percentage Change in Value Values
Initial exchange rate (peso/$)
3.20
Problem 2.7 Mexican Peso Changes
In December 1994 the government of Mexico officially changed the value
of the Mexican peso from 3.2 pesos per dollar to 5.5 pesos per dollar. What
was the percentage change in its value? Was this a depreciation,
devaluation, appreciation, or revaluation? Explain.
5.50
Percentage change in peso value -41.82%
Assumptions Values
Original Chinese yuan peg to the dollar, yuan/$
8.28
Problem 2.8 Hong Kong Dollar and the Chinese Yuan
The Hong Kong dollar has long been pegged to the U.S. dollar at HK$7.80/$. When
the Chinese yuan was revalued in July 2005 against the U.S. dollar from Yuan8.28/$
to Yuan8.11/$, how did the value of the Hong Kong dollar change against the yuan?
8.11
7.80
Calculation of Percentage Change in Value Values
Initial exchange rate, post official revaluation (Yuan/$)
8.11
Problem 2.9 Chinese Yuan Revaluation
Many experts believe that the Chinese currency should not only be revalued
against the U.S. dollar as it was in July 2005, but also be revalued by 20%
or 30%. What would be the new exchange rate value if the yuan was
revalued an additional 20% or 30% from its initial post-revaluation rate of
Yuan 8.11/$?
8.11
Assumptions Values
Original (2009) cholesterol unit price, rupees (Rps)
21,900.00
Problem 2.10 Ranbaxy (India) in Brazil
Ranbaxy, an India-based pharmaceutical firm, has continuing problems with its
cholesterol reduction product’s price in one of its rapidly growing markets, Brazil. All
product is produced in India, with costs and pricing initially stated in Indian rupees (Rps),
but converted to Brazilian reais (R$) for distribution and sale in Brazil. In 2009, the unit
volume was priced at Rps21,900, with a Brazilian reais price set at R$895. But in 2010,
the reais appreciated in value versus the rupee, averaging Rps26.15/R$. In order to
preserve the reais price and product profit margin in rupees, what should the new rupee
price be set at?
Currency Exchange Rate Commission
Vietnamese bank rate d19,800 2.50%
Many people were surprised when Vietnam became the second largest coffee producing country in the world in recent
years, second only to Brazil. The Vietnamese dong, VND or d, is managed against the U.S. dollar but is not widely
traded. If you were a traveling coffee buyer for the wholeale market (a “coyote” by industry terminology), which of the
following currency rates and exchange commission fees would be in your best interest if traveling to Vietnam on a
buying trip?
Problem 2.11 Vietnamese Coffee Coyote
Problem 2.12 Chunnel Choices
The Channel Tunnel or “Chunnel” passes underneath the English Channel between Great Britain and France, a land-link
between the Continent and the British Isles. One side is therefore an economy of British pounds, the other euros. If you
were to check the Chunnel’s rail ricket Internet rates you would find that they would be denominated in U.S. dollars
(USD). For example, a first class round trip fare for a single adult from London to Paris via the Chunnel through
RailEurope may cost USD170.00. This currency neutrality, however, means that customers on both ends of the Chunnel
pay differing rates in their home currencies from day to day. What is the British pound and euro denominated prices for
the USD170.00 round trip fare in local currency if purchased on the following dates at the accompanying spot rates
drawn from the Financial Times ?
Currency Crossrate Spot Rate
Jordanian dinar (JD) per euro (€) JD 0.96/€
What is the dollar price after all exchanges and fees?
Purchase price, converted to Jordanian dinar (JD)
408,000.00
461,040.00
129,091.20
590,131.20
Problem 2.13 Barcelona Exports
Oriol Díez Miguel S.R.L., a manufacturer of heavy duty machine tools near Barcelona, ships an
order to a buyer in Jordan. The purchase price is €425,000. Jordan imposes a 13% import duty on
all products purchased from the European Union. The Jordanian importer then re-exports the
product to a Saudi Arabian importer, but only after imposing their own resale fee of 28%. Given
the following spot exchange rates on April 11, 2010, what is the total cost to the Saudi Arabian
importer in Saudi Arabian riyal, and what is the U.S. dollar equivalent of that price?