In: Finance
Question 45 (3 point)
If the exchange rate between the U.S. dollar and the British Pound is $1.66 per Pound, then what is the Pound per dollar exchange rate? (Express your answer as xx.xx.)
Your Answer:
If the exchange rate between the U.S. dollar and the Euro is $1.72 per Euro and the exchange rate between the U.S. dollar and the Japanese yen is 108.36 Yen per dollar, then what is the Yen per Euro exchange rate?
Your Answer:
If the exchange rate between the U.S. dollar and the British Pound is $1.52 per Pound and the annual rate of inflation is 2.24 percent in the United States and 3 percent in Great Britain, what will be U.S. dollar per Pound exchange rate in one year? (Express your answer as XX.XX)
Your Answer:
1. Solution is given below
The exchange rate given is USD/GBP = 1.66
This means 1 GBP is equivalent to 1.66 USD
Now what we need to find out is exchange rate GBP/USD. (GBP is Pound)
Thus exchange rate GBP/USD would be
1/1.66 = 0.6024
or 0.60 (rounded off to two decimals)
Hence we can say 1 USD = 0.60 Pounds. (rounded off to two decimals)
2. Solution is given below
The exchange rate given is USD/EURO = 1.72
This means 1 EURO is equivalent to 1.72 USD
and YEN/USD = 108.36
This means 1 USD is equivalent to 108.36 YEN
Using the formula of Cross rates we will find out YEN/EURO
Therefore YEN/EURO = 1.72 * 108.36
= 186.38 (rounded off to two decimals)
3. Solution is given below
The exchange rate given is USD/GBP = 1.52
This means 1 GBP is equivalent to 1.52 USD
Annual Rate of Inflation in United States = 2.24 %
Annual Rate of Inflation in Great Britain = 3 %
Using Purchasing Power Parity
E(S1) / S0 = 1 + Inflation in US / 1+ Inflation in Britain
where E(S1) is the expected Spot rate after one year
S0 is the current spot rate
Therefore
E(S1) / 1.52 = 1 + 0.0224 / 1+ 0.03
E(S1) = (1.52 * 1.0224) / 1.03
E(S1) = 1.51 (rounded off to two decimals)
Thus US dollar per pound exchange rate in one year would be = 1.51
or This means 1 GBP is equivalent to 1.51 USD.