SHOW WORK PLEASE 67.1) You want to exchange 10,000 euros for British pounds (£)
ID: 2787479 • Letter: S
Question
SHOW WORK PLEASE
67.1) You want to exchange 10,000 euros for British pounds (£) in Zurich, Switzerland, as your travel from Paris, France to London, England. The spot Swiss Franc/euro cross rate is SFr 0.8204/€ and the spot Swiss Franc / British pound cross rate is SFr 0.6738/£.
A) What is the British pound / euro cross rate?
B) How many British pounds will you obtain for your euros?
67.4) The Japanese Yen suddenly changes in value against the euro moving from an exchange rate of ¥140.541/€ to ¥139.980/€. Thus, the Yen has ________ by ________.
Appreciated or Depreciated by _________
67.5) Assume the current Yen-euro spot rate is ¥140.541/€. Further, the current nominal 180-day rate of return in Japan is 1.2% and 4.5% in the Europe. Assuming yen is your home currency, what is the approximate forward exchange rate for 180 days?
Forward Exchange Rate = __________
67.6A) Answer the following assuming that the export price of a Toyota Camry base model is ¥2,409,325, the exchange rate is ¥113.380/$, the forecast for U.S. inflation is 1.1% and for Japanese inflation is 0.5%. What is the export price of the Camry at the beginning of the year in US$?
67.6B) Assuming 50% pass-through, what is the dollar price of a Camry at the end of the year?
67.7A) The treasurer of a Swiss company operating in New Zealand considers a one-year bank loan of €400,000 with an interest rate of 4.2% (euro based). The current spot rate is €1.6311/NZ$ and a local loan in New Zealand dollars (NZ$) would carry a rate of 4.0%. Expected inflation rates are 2.5% and 2.2% in New Zealand and in Europe, respectively, for the coming year. According to purchasing power parity, what is the effective cost of NZ$ funds for the Swiss Company?
67.7B) If the future spot rate is €1.6025/NZ$, what is the effective cost of NZ$ funds for the Swiss Company?
67.8) The spot exchange rate is ¥102.30/$, the 180-day forward exchange rate is ¥101.40/$, the 180-day dollar interest rate is 4.8% per year, and the 180-day yen interest rate is 3.4% per year. Models suggest that spot will remain close to ¥101.90/$ over the next 180 days. How much profit does investing $5,000,000 (or its yen equivalent) in a covered interest arbitrage between US dollars and Japanese yen yield?
67.9) The spot exchange rate is ¥102.30/$, the 180-day forward exchange rate is ¥101.40/$, the 180-day dollar interest rate is 4.8% per year, and the 180-day yen interest rate is 3.4% per year. Models suggest that spot will remain close to ¥101.90/$ over the next 180 days. How much profit does investing $5,000,000 (or its yen equivalent) in an uncovered interest arbitrage between US dollars and Japanese yen yield?
Explanation / Answer
67.1
a.
British pound / euro cross rate = 0.8204 / 0.6738
= €1.2176 per GBP.
British pound / euro cross rate is €1.2176 per GBP.
b.
Total Pound receive = €10,000 / 1.2176
= £8,213.07
Total pound receive in exchange of 10,000 euro is £8,213.07
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