a. Is the euro appreciating or depreciating against the U.S. dollar? Explain. b.

Question

a. Is the euro appreciating or depreciating against the U.S. dollar? Explain. b. Is the Swiss franc appreciating or depreciating against the U.S. dollar? Why? c. Is the Mexican peso appreciating or depreciating against the U.S. dollar? Why? d. Using cross-rates, based on the spot rate, how many francs will the euro buy, how many pesos will the franc buy, and how many euro will the peso buy? e. A U.S. company purchases goods from several foreign companies with payment due in euros, francs, and pesos. Would the company be better off paying now or waiting for 60 days? Why?

Explanation / Answer

1 franc = 1.12 dollar

So, 1 euro = 1.38/1.12 = 1.23 franc

Similarly,

1 franc = 1.12/0.08 = 14 Mexican pesos

And,

1 peso = 0.08/1.38 =0.057 euro

(e) Company should pay in swiss franc as it is appreciating while pay in euros and pesos later as they are expected to depriciate in future.

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