Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Question
Chapter 16, Problem 3SP
a)
Summary Introduction
To determine: Spot exchange rate of Country J yen to Country U dollar.
b)
Summary Introduction
To determine: Spot exchange rate for Country S franc to Country U dollar.
c)
Summary Introduction
To determine: Spot exchange rate of Country C $ to Country U dollar.
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State what are the presumed advantages of using forward exchange contracts.
Calculate the sterling amount that the merchant would receive on these contracts.
1. Based on the following information, answer the problems showing procedure for each
problem.
CURRENCY SPOT & FORWARD RATES
TABLE_1
U.S./Can.
$1 U.S. $1 Cdn
Cdn.$
U.S. $
in
in
Country
per unit per unit
Cdn.$= U.S.$=
1.5833
0.6316
SPOT
1 month forward 1.5847
2 months forward 1.5861
3months forward 1.5879
6months forward 1.5932
12months forward 1.6041
3years forward 1.6328
5years forward 1.6538|
7years forward 1.6738
10years forward 1.7133
Britain
1 m forward
2 m forward
3 m forward
6 m forward
12 m forward
Europe
1 m forward
3 m forward
6 m forward
12 m forward
Japan
(pound) 2.4582
2.4559
2.454
2.4525
2.4474
2.4392
1.5504
1.5497
1.549
1.5489
1.5506
(Yen) 0.013034 0.008232
1 m forward 0.013066 0.008245
1.5526
1.5498
1.5472
1.5445
1.5362
1.5206
0.9792
0.9779
0.9755
0.9722
0.9666
0.631
0.6305
0.6298
0.6277
0.6234
0.6124
0.6047
0.5974
0.5837
(euro)
Cdn.$
in 2001:
High 1.5028
Low 1.6183
Average 1.5701
0.6654
0.6179
0.6369
3 m forward 0.013131
0.00827
6 m forward 0.013231 0.008305
12 m…
Suppose a U.S. firm purchases some Chinese handicrafts. The china costs 1,000 Chinese yuan. At the exchange rate of $1.00 = 6.2 yuan, the dollar price of the goods is:
Chapter 16 Solutions
Foundations Of Finance
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - What is meant by arbitrage profits?Ch. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - Prob. 1SP
Ch. 16 - Prob. 2SPCh. 16 - Prob. 3SPCh. 16 - Prob. 4SPCh. 16 - (Exchange rate arbitrage) You own 10,000. The...Ch. 16 - Prob. 6SPCh. 16 - Prob. 7SPCh. 16 - Prob. 8SPCh. 16 - Prob. 9SPCh. 16 - Prob. 10SPCh. 16 - Prob. 11SPCh. 16 - (Purchasing-power parity) Lets assume a McDonalds...Ch. 16 - Prob. 1MCCh. 16 - Prob. 2MCCh. 16 - Prob. 3MCCh. 16 - d. What are the differences among a forward...Ch. 16 - Prob. 5MCCh. 16 - Prob. 6MCCh. 16 - Selling Quotes for Foreign Currencies in New York...Ch. 16 - Prob. 8MCCh. 16 - Prob. 9MC
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- For each of the following transactions, determine which U.S balance of payments account is credited and which is debited and by how much. Assume payments for all transactions are deposited into a U.S dollar-denominated bank account. Calculate for c and d.arrow_forwardAn Australian firm asks the bank for an AS/SFr quote because it received SFr and wants to change it to A$. A bank is quoting the following exchange rates against the US dollar for the Swiss franc and the Australian dollar: SFr/US$ = 1.4950-60 AS/USS = 1.5245-50 Calculate the cross ask rate for the A$/SFR by identifying the correct formula in the attached formula sheet. One of the following answers will be correct: a. 1.0201 b. 1.0213 c. 0.9813 d. 0.9803 Show your workings in the space provided as well as the correct answer. For example write your answer as follows in the space provided below: Spot ask rate (AS/SFR) = 1.4670/1.3980 = 1.0494arrow_forwardSuppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$1.10 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.53 per F$. Suppose that Retrojo negotiates a forward contract with a bank, which commits it to purchasing Fijian dollars at F$1,100,000.00 at $0.53 per Fijian dollar in 90 days. Thus, Retrojo knows with certainty that it will need F$1,100,000.00 × $0.53 per Fijian dollars = $583,000.00 for this exchange. Assume the Fijian dollar depreciates over this time period to $0.42 per Fijian dollar. If this were the case the, outside of the contract with the bank, only $ (U.S. dollars) would be needed to exchange for the required F$1,100,000.00.arrow_forward
- Suppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$2.00 million (Fijian dollars, F$) worth of imports from Fiji in 90 days. Currently, the spot rate for the Fijian dollar is $0.80 per F$. Suppose that Retrojo negotiates a forward contract with a bank, which commits it to purchasing Fijian dollars at F $2,000,000.00 at $0.80 per Fijian dollar in 90 days. Thus, Retrojo knows with certainty that it will need F$2,000,000.00×$0.80 per Fijian dollars =$1,600,000.00 for this exchange. Assume the Fijian dollar depreciates over this time period to $0.67 per Fijian dollar. If this were the case the outside of the contract only (U.S. dollars) would be needed to exchange for the required F$2,000,000.00.arrow_forwardAnswer in typingarrow_forwardYour firm is a U.S.-based supplier of agricultural parts. A European customer just made a €50,000 purchase on trade credit terms of net 30 days. At the time of the sale, the exchange rate was EUR/USD 1.19. The projected exchange rate in 30 days is EUR/USD 1.21. Calculate the value of accounts receivable on the date of the sale. a. $41,322.31 b. $42,016.81 C. $59,500.00 d. $60,500.00arrow_forward
- A computer costs $560 in the United States. The same model costs 640 in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar? Do not round intermediate calculations.arrow_forwardA merchant in the UK has agreed to sell goods to an importer in the USA at an invoice price of $130,000. Of this amount, $40,000 will be payable on shipment, $60,000 one month after shipmentand $30,000 three months after shipment.The quoted foreign exchange rates ($ per £) at the date of shipment are as follows:Spot rate (on shipment) 1.690 -1.692Forward rate-(one month after) 1.687 -1.690Forward rate-(three months after) 1.680 -1.684The merchant decides to enter forward exchange contracts through his bank to hedge these transactions for fear that the future spot rates may change to his disadvantage. i. State what are the presumed advantages of using forward exchange contracts. ii. Calculate the sterling amount that the merchant would receive on these contracts. iii. Comment on the wisdom of the merchant decision to hedge by comparing his total receipts inpound sterling, assuming the spot rate ($ per £) at the dates of receipt of first payment upon shipment remains the same but rates…arrow_forwardA computer costs $600 in the United States. The same model costs €555 in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar? Do not round intermediate calculations. Round your answer to two decimal places. 1 euro = $arrow_forward
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