Country Contract $/Foreign Currency Canada – Dollar Spot 0.8437 30-day 0.8417 90-day 0.8395 Japan – Yen Spot 0.004684 30-day 0.004717 90-day 0.004781 Switzerland - Franc Spot 0.5139 30-day 0.5169 90-day 0.5315 a. (Spot exchange rates) An American business needs to pay (a) 10,000 Canadian dollars, (b) 2 million yen, and (c) 50,000 Swiss francs to businesses abroad. What are the dollar payments to the respective countries? b. (Spot exchange rates) An American business pays $10,000, $15,000, and $20,000 to suppliers in, respectively, Japan, Switzerland, and Canada. How much, in local currencies, do the suppliers receive? c. (Exchange rate arbitrage) You own $10,000. The dollar rate in Tokyo is 216.6743. The yen rate in New York is given in the preceding table. Are arbitrage profits possible? Set up an arbitrage scheme with your capital. What is the gain (loss) in dollars?
|
Country |
Contract |
$/Foreign Currency |
|
Canada – Dollar |
Spot |
0.8437 |
|
|
30-day |
0.8417 |
|
|
90-day |
0.8395 |
|
Japan – Yen |
Spot |
0.004684 |
|
|
30-day |
0.004717 |
|
|
90-day |
0.004781 |
|
Switzerland - Franc |
Spot |
0.5139 |
|
|
30-day |
0.5169 |
|
|
90-day |
0.5315 |
a. (Spot exchange rates) An American business needs to pay (a) 10,000 Canadian dollars, (b) 2 million yen, and (c) 50,000 Swiss francs to businesses abroad. What are the dollar payments to the respective countries?
b. (Spot exchange rates) An American business pays $10,000, $15,000, and $20,000 to suppliers in, respectively, Japan, Switzerland, and Canada. How much, in local currencies, do the suppliers receive?
c. (Exchange rate arbitrage) You own $10,000. The dollar rate in Tokyo is 216.6743. The yen rate in New York is given in the preceding table. Are arbitrage profits possible? Set up an arbitrage scheme with your capital. What is the gain (loss) in dollars?
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