In: Economics
FX Basics
a. Your Canadian friend owes you USD 100. The current USD/CAD exchange rate is at 0.80. You are OK with being paid in CAD. How many CAD do you request from your friend?
b. If the JPY/EUR exchange rate is 150.00 JPY/EUR and it takes 50.00 THB (Thai Baht) to purchase one EUR, what is the price of a Baht expressed in Yen (i.e., JPY/THB rate)?
c. You observe the USD/EUR exchange rate at 1.26 today, while it was 1.42 several years ago. Which currency has appreciated, which has depreciated? By how much?
d. Starbucks needs to make a payment of KES 470,000,000 to its Kenyan coffee supplier. Citibank quotes Starbucks a bid and ask of 94.00 – 100.00 KES/USD. What is the USD amount of the payment? Remember the rip-off rule
e. Last year, you invested USD 10,000 in a European Hedge Fund which is denominated in EUR. The fund’s performance has been OK, with a return (in EUR) of +9.7%. But the USD/EUR exchange rate went from 1.3400 a year ago to 1.2750 USD/EUR today. If you sold your investment today, how many USD would you be able to collect?
A)
1CAD = 0.80 USD
Total USD 100 convert into CAD = (100 / 0.80 ) = 125 CAD
B)
1EUR = 150 JPY ( JPY/EUR)
1 EUR = 50 THB ( THB / EUR )
(JYP / THB) = (JPY / EUR ) * ( EUR / THB)
= (150 * 1/ 50)
= 3
1 THB = 3 JYP
C)
1 EUR = 1.26 USD ( Current ) or 1 USD = 0.794
1 EUR = 1.42 USD ( Previous) or 1 USD = 0.704
EUR ( Depreciation ) = (1.26 - 1.42) = -0.16 USD
USD ( Appreciated ) = ( 0.794 - 0.704 ) = 9 EUR
D)
KES 470,000,000
We need to purchase KES Bank will sell KES . Bank will see at ask rate .
Now the exchange rate given is indirect 1 USD = 94 KES - 100 KES
Change into direct quote 1 KES = 1/100 USD - 1/94 USD
(While changing the exchange rate bid and ask rate will inter change )
Bank will sell at ask rate which is 1/94 USD for 1 KES. Hence total amount of UDS required for KES payment =
= (KES 470,000,000 * 1/94)
= USD 5000,000
E)
Last year amount of euro invested = ( USD 10000 / 1.34 ) = EUR 7462.70
Interest rate 9.7%
Total amount in Euro as on today = (EUR 7462.70 + 9.7%) = EUR 8186.58
Total amount in USD = ( EUR 8186.58 * 1.2750 ) = USD 10437.87