Question

In: Economics

FX Basics a. Your Canadian friend owes you USD 100. The current USD/CAD exchange rate is...

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?

Solutions

Expert Solution

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


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