3. Consider the following information on South Korea's trade. Thirty percent of the trade is conducted with country A, 55% of trade with country B, and 15% of trade with country C. If the won appreciates 10% against country A, depreciates 30% against country B, and depreciates 10% against country C, then the effective trade-weighted real exchange rate experiences a percent appreciation/depreciation?
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- 17. A Taiwanese company is to export electronic equipment into Europe, in particular Germany and Sweden, and needs to consider the exchange rate implications of conducting business in euros and Swedish krona. Spot rates quoted are: USD/EUR 0.9275-85 USD/SEK 8.4531-41 Calculate the EUR/SEK cross-rate. Show your calculations.(b) Given the following exchange rate in Malaysia and Korea: Currencies pair Rate The Exchange GBP/MYR 5.5800 Malaysia KRW/MYR 0.0035 Malaysia GBP/KRW 1,581.00 Korea i. Determine any arbitrage opportunity. ii. Calculate the profit/ (loss) from the above triangular arbitrage assuming your investment starts with KRW5,000,000. iii. Conclude your answer in (b) above.3. Trading in foreign exchange What are spot rates and forward rates? Purple Whale Foodstuffs Inc., a U.S. company, produces and exports industrial machinery overseas. It recently made a sale to a Japanese manufacturing firm for ¥625 million, but the Japanese firm has 60 days before it must make the payment to Purple Whale Foodstuffs Inc. The spot exchange rate is ¥128.75 per dollar, and the 60-day forward rate is ¥133.45 per dollar. Is the yen selling at a premium or at a discount in the forward market relative to the U.S. dollar? The yen is trading at a discount in the forward market. In the forward market, the yen is trading at a premium. If the customer pays Purple Whale Foodstuffs Inc. the ¥625 million today, how much will Purple Whale Foodstuffs Inc. receive in dollars? O $4.85 million $5.34 million $5.09 million O $5.58 million Assuming that the forward market is correct and the spot exchange rate in 60 days will equal the 60-day forward exchange rate today, Purple Whale…
- A product sells for $1,000 in the U.S. If the exchange rate between $ and euro is $1 = 0.90 euro, and if ppp holds, what would be the price of the same product in europe?Suppose you have the following spot exchange rates: USD/AUD 0.5300 AUD/EUR 1.6428 USD/EUR 0.8782 a) Calculate the US dollar profit (per 1 USD), if any, on a three-point arbitrage. b) Calculate AUD profit (per 1 AUD), if any, on a three-point arbitrage. c) How can you explain the answers in (1) and (2)?Suppose the current exchange rate between the US dollar (USD) and the euro (EUR) is 1 USD = 0.85 EUR. Additionally, assume that the expected rate of return on US assets is 8% and the purchasing price of a US asset is $ 100. Calculate the expected rate of return on this US asset in terms of euros. [5] How does the ability of international investors to quickly and easily switch between domestic and foreign assets impact the relationship between exchange rates and asset prices, particularly in terms of expected rates of return?
- Answer the following questions related to the foreign exchange rate and market. (1) The current exchange rate between the U.S. dollar and the Australian dollar is U.S. $1 = AUD$1.31. If the U.S. dollar is expected to appreciate by 5% relative to the Australian dollar, what is the new expected exchange rate? (2) The Argentinean peso trades at 0.06 peso per U.S. dollar. How many Argentinean pesos would you tip a taxi driver if you give her a $9 bill? (3) During the 1997 Asian financial crisis, the Thai baht was trading at $0.02475 per Thai baht. The Thai baht is trading at $0.03093 per Thai baht now. What is the percentage change in the Thai baht's value? Would you consider it an appreciation or depreciation? (4) Suppose that the U.S. Federal Reserve decides to raise interest rates to combat inflation. How will this decision affect the exchange rate between the U.S. dollar and the euro? Discuss with references or a practical example.Using the cost and revenue information shown for Dekalb, Inc., determine how the costs, revenue, and cash flow items would be affected by three possible exchange rate scenarios for the New Zealand dollar (NZ$): (1) NZS = $0.55, (2) NZS = $0.60, and (3) NZ$ = 50.65. (Assume U.S. sales will be unaffected by the exchange rate.) REVENUE AND COST ESTIMATES: DEKALB, INC. (IN MILLIONS OF U.S. DOLLARS AND NEW ZEALAND DOLLARS) U.S. Business Sales $1,000 Cost of Materials 650 Operating 350 New Zealand Business NZ$900 300 0 Expenses Interest Expense Cash Flow 250 -$250 0 NZ$600 Assume that NZ$ earnings will be remitted to the U.S. parent at the end of the period. Ignore possible tax effects. Round your answers to the nearest dollar. Sales U.S. NZ$ = $0.55 NZ$ = $0.60 NZS = $0.65 $ 1,000 $ 1,000 $ 1,000 New Zealand Total NZ$900 - NZ$900 - NZ$900 - $ $ S Cost of Materials U.S. $ 650 New Zealand NZ$300 = NZ$300 = Total $ $ Operating expenses $ 350 Interest expenses $ 250 Cash flow $ 650 5 650 NZ$300…2) Using the following cost and revenue information shown for Walmart, determine how the costs, revenue, and cash flow would be affected by three possible exchange rate scenarios for the New Zealand dollar (NZ$): (1) NZ$ = $.50, (2) NZ$ = $.55, and (3) NZ$ = $.60. (Assume U.S. sales will be unaffected by the exchange rate.) Assume that NZ$ earnings will be remitted to the U.S. parent at the end of the period. Ignore possible tax effects. Forecasted Net Cash Flows: Walmart. (in millions of U.S. dollars and New Zealand dollars) Sales Cost of Materials Operating Expenses Interest Expense Cash Flow U.S. Business $800 500 300 100 -$100 New Zealand Business NZ$800 100 0 0 NZ$700
- Given S(USD/AUD) = 0.7899, the price of a consumption basket in the US is$100 and the price of the same basket in Australia is $120. What is the real exchangerate and is it higher or lower than the nominal exchange rate?17. A Taiwanese company is to export electronic equipment into Europe, in particular Germany and Sweden, and needs to consider the exchange rate implications of conducting business in euros and Swedish krona. Spot rates quoted are: USD/EUR 0.9275-85 USD/SEK 8.4531-41 Calculate the EUR/SEK cross-rate. A. EUR/SEK 0.1097–0.1098 B. EUR/SEK 9.1139–9.1051 C. EUR/SEK 9.1051–9.1139 D. EUR/SEK 9.1040–9.1149Suppose exchange rates are: EUR/AUD = 1.5550 GBP/AUD = 2.8923 GBP/EUR = 1.8600 Starting with 10,000 AUD, what are the one-round-trip arbitrage profits rounded to the nearest AUD? 14,180 AUD No arbitrage profit is possible. 1,961 AUD 73,654 AUD