You are planning a week-long trip to Delhi, India from Melbourne, Australia. You

Question

You are planning a week-long trip to Delhi, India from Melbourne, Australia. You will leave Melbourne today with A$5,000 in your wallet. You plan to exchange this amount to Indian Rupee (Rs) upon arrival at the Delhi International Airport. You expect that, while staying in India, you will use 40% of these Rupees. You further expect that, when you come back to Melbourne after a week, you will exchange the left-over Rupees back to the Australian dollar (A$).

Suppose you are given the following information:

Expected spot rate at the time of your arrival at Delhi ($/A$): $0.71/A$

Expected spot rate at the time of your arrival at Delhi (Rs/$): Rs68.54/$

Expected spot rate at the time of your return to Melbourne ($/A$): $0.73/A$

Expected spot rate at the time of your return to Melbourne (Rs/$): Rs70.05/$

What's the amount of Australian Dollar you expect to get back when you return to Melbourne?

Explanation / Answer

$ received at the time of arrival at Delhi = $0.71 x 5,000 = $3,550
Rs. received at the time arrival at Delhi = $3,550 x Rs.68.54 = Rs. 243,317

Left-over Rs. at the time of return = Rs. 243,317 x 60% = Rs.145,990.2

$ to be received in exchange = Rs.145,990.2/ Rs.70.05 = $2,084.09
A$ to be received in exchange = $2,084.09/$0.73 = A$2,854.91

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