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Costco is an American wholesale corporation which has expanded its business internationally. a) Costco currently needs...

Costco is an American wholesale corporation which has expanded its business internationally. a) Costco currently needs to buy Australian dollars to be used to open another store in Melbourne. The quote advertised by a local foreign exchange dealer in New York is AUD 1= USD 0.6690-0.6700 1) What is the commodity currency in the advertised quote? Is it a direct quotation or an indirect quotation? [1 mark] ii) What is the rate at which Costco can exchange US dollars into Australian dollars? Explain why? [2 marks] iii) If Costco has USD $10,000,000, how much AUD can it be exchanged for given your answer to part a) 11)? [1 mark] b) At the end of each financial year Costco needs to convert its profit earned in Australia into USD. i) What are the up-side and down-side foreign exchange risks Costco may have to face? [2 marks]
ii) If the Australian dollar depreciates by 20 pips in both the bid and offer rate at the end of this financial year, what is the rate at which Costco exchanges Australian dollars into US dollars? Explain why (In your discussion you need to identify the new quote after the depreciation of AUD against USD) [3 marks] iii) If Costco has AUD $500,000, how much US dollars can it be exchanged for given your answer to part b) ii)? [1 mark

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jeff jeffy answered 1 year ago
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