You are American and plan to move to Japan in three-months where you will live f

Question

You are American and plan to move to Japan in three-months where you will live for one year to complete your advanced training in language studies. At the time of your move you will have saved $35,000, which you will need to convert to yen. Over the next three months, the dollar is expected to depreciate against the yen by 1.97%. How many yen could you purchase in three months? You are American and purchased a stock trading on the Brazilian stock exchange. In order to make the stock purchase you convert your USD to Brazilian real (BZR). At this time you plan to liquidate your position and convert the real back to USD. In order to determine whether you have gained or lost on the investment in the real, the quotes should be expressed as USD/BZR OR BRZ/USD Based on your answer to the previous question, calculate the percentage gain or loss on the BZR for an American investor. FX rate when stock is purchased: BZR/USD = 2.5687 FX rate when stock is sold BZR/USD 2.1479 A Chinese bond trader has taken an interest in Turkey's tranche issues and is planning to convert her yuan (CNY) to the necessary amount of Turkish lira (TRY). In order to determine whether the Chinese investor has gained or lost on the investment in TRY, the quotes should be expressed as: RY/CNY ORCNY/TRY 9 Calculate the cross rate for the Chinese investor at the time the Turkish bond is purchased. FX rate when bond is purchased 10 TRY/USD= 2.2309 USD/CNY= 0.1626 Calculate the cross rate for the Chinese investor at the time the Turkish bond is sold assuming FX rates on that day are What is the Chinese investor's percentage gain or loss on the foreign currency, TRY, investment? Suppose that the spot GBP is: USD/GBP 1.4570-1.4576. The 6 month forward rate is: USD/GBP = 1.4428-1.4434. Calculate I TRY/USD= 2.0197 USD/CNY=0.1487 13 the: a) spot mid-point and the b) 6 month forward mid-point__. 14Based on the midpoints for the spot GBP and 6 month forward rates for the USD/GBP, is the pound trading at a forward discount or a forward premium relative to the USD? Forward discount or Forward premium 15 Use the mid-points to determine the forward discount or premium for the GBP relative to the USD

Explanation / Answer

6. Dollars saved = 35000

Let us assume FX rate USD/YEN = x (as of today)

FX rate post 3 months USD/YEN = (1 – 0.0197)x = .9803x

Yen that could be purchased = 35000 * .9803x = 34310.5x

7. In order to determine gain or loss FX rates should be given in USD/BZR or BZR/USD but both rates at time of purchasing stock and selling stock. So we need two FX rates.

8.Lets assume we had 10,000 USD initially in hand

At time of stock purchase, FX BZR/USD = 2.5687

So 10,000 USD = (10000/2.5687) = 3983.019815 BZR

At time of stock sell, FX BZR/USD = 2.1479

So 3983.019815 BZR = (3983.019815 * 2.1479) = 8361.81 USD

So % loss = ((10000-8361.81)/10000) * 100 = 16.38%

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