Foundations Of Finance
10th Edition
ISBN: 9780134897264
Author: KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher: Pearson,
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Chapter 16, Problem 1SP
Summary Introduction
To determine: Spot exchange rate for Country S franc to Country U dollar.
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Your foreign exchange trader in the United States has quoted the following rates for the Swiss Francs spot, 1-month, 3-month, and 6 month:
$0.5965/72
50/61
127/143
242/267
a. If/you wished to buy 1,000,000 3-month Swiss Francs, how much would you pay in dollars?
b. If you wanted to buy 1,000,000 6-month dollars, how much would you pay in Swiss Francs?
.C.
In New York, three month treasury bills yield 11% per annum, Using ask quotes only for simplicity, calculate the yields on Swiss three-month bills.
Suppose a U.S. firm purchases some Chinese handicrafts. The china costs 1,000 Chinese yuan. At the exchange rate of $1.00 = 6.2 yuan, the dollar price of the goods is:
Consider a U.S.-based company that exports goods to Switzerland. The U.S. company
expects to receive a payment of 50,000 Swiss Francs (CHF) on a shipment of goods
in 6 months' time. The U.S. interest rate is 2% p.a., and the Swiss interest rate is 4%
p.a. Assume that the current spot rate is CHF0.96/USD. Which of the following
statements is correct:
The risk to the U.S. company is that the value of the Swiss franc will rise and
therefore it should enter into a contract to buy Swiss francs forward
The risk to the U.S. company is that the value of the Swiss franc will decline and
therefore it should enter into a contract to buy Swiss francs forward
The risk to the U.S. company is that the value of the Swiss franc will decline and
therefore it should enter into a contract to sell Swiss francs forward
The risk to the U.S. company is that the value of the Swiss franc will rise and
therefore it should enter into a contract to sell Swiss francs forward
Chapter 16 Solutions
Foundations Of Finance
Ch. 16 - Prob. 1RQCh. 16 - Prob. 2RQCh. 16 - What is meant by arbitrage profits?Ch. 16 - Prob. 4RQCh. 16 - Prob. 5RQCh. 16 - Prob. 6RQCh. 16 - Prob. 7RQCh. 16 - Prob. 8RQCh. 16 - Prob. 9RQCh. 16 - Prob. 1SP
Ch. 16 - Prob. 2SPCh. 16 - Prob. 3SPCh. 16 - Prob. 4SPCh. 16 - (Exchange rate arbitrage) You own 10,000. The...Ch. 16 - Prob. 6SPCh. 16 - Prob. 7SPCh. 16 - Prob. 8SPCh. 16 - Prob. 9SPCh. 16 - Prob. 10SPCh. 16 - Prob. 11SPCh. 16 - (Purchasing-power parity) Lets assume a McDonalds...Ch. 16 - Prob. 1MCCh. 16 - Prob. 2MCCh. 16 - Prob. 3MCCh. 16 - d. What are the differences among a forward...Ch. 16 - Prob. 5MCCh. 16 - Prob. 6MCCh. 16 - Selling Quotes for Foreign Currencies in New York...Ch. 16 - Prob. 8MCCh. 16 - Prob. 9MC
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- A product sells for $750 in the United States. The spot exchange rate is $1 to 1.56 Swiss francs. If purchasing power parity (PPP) holds, what is the price of the product in Switzerland? a. 1,228.50 b. 1,392.30 O c. 1,462.50 O d. 1,170.00 O e. 947.70arrow_forwardA product sells for $1,000 in the U.S. If the exchange rate between $ and euro is $1 = 0.90 euro, and if ppp holds, what would be the price of the same product in europe?arrow_forwardToday you notice the following exchange rate quotation:$1 = 3 Argentine pesos1 Argentine pesos = 0.50 Canadian dollar1 Canadian dollar = 2.25 Mexico pesosYou need to purchase 0.1 million Canadian dollars with U.S. dollars. How many U.S. dollars will you need for your purchase? Please show your calculationarrow_forward
- An U.S. firm requires C$230,000 in 90 days to pay the imports from Canada. To avoid currency exchange rate risk, it needs to __________ A. purchase Canadian dollars (C$) 90 days from now at the spot rate B. obtain a 90-day forward sale contract on Canadian dollars (C$) C. obtain a 90-day forward purchase contract on Canadian dollars (C$) D. sell Canadian dollars (C$) 90 days from now at the spot ratearrow_forwardA computer cost $1,300 in the United States. The same computer costs € 1,100 euros in Europe. Assuming that the purchasing power parity( PPP) strictly holds, what is the spot exchange rate between dollar and the euro?arrow_forwardA bank is quoting the following exchange rates against the dollar for the Swiss franc and the Australian dollar: SFr/$ 1.4970 - 80 A$/$ 1.6237 - 47 An Australian firm asks the bank for an SFr/A$ quote. What cross-rate would the bank quote? (Round your answers to 4 decimal places.) Cross-rate Bid Price Ask Pricearrow_forward
- today you notice the following exchange rate quotations. $1 is equal to 4.08 Argentine pesos. 1 Argentine peso = 0.44 Canadian dollars. You need to purchase 3251 Canadian dollars with U.S dollars. How many U.S dollars will you need for your purchase? (Do not round intermediate calculations and enter your answer rounded to 2 decimal places)arrow_forwardThe $/€ exchange rate is €1 = $1.45, and the €/SFr exchange rate is SFr1 = €0.71. What is the SFr/$ exchange rate? Suppose the direct quote for the British pound in New York is 1.9110–5. (a) How much would £500,000 cost in New York? (b) What is the direct quote for U.S. dollars in London?arrow_forwardA computer costs $600 in the United States. The same model costs €555 in France. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar? Do not round intermediate calculations. Round your answer to two decimal places. 1 euro = $arrow_forward
- The following exchange rates are available to you. (You can buy or sell at the stated rates.) Mt Fuji Bank ¥120.00/A$ Mt Rushmore Bank SF1.6000/A$ Mt Blanc Bank ¥80.00/SF Assume that you have SF10, 000,000. Can you make a profit via triangular arbitrage? If so, show the steps that you will follow and calculate the amount of profit in Swiss francs.arrow_forwardThe theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A scanner sells for $65.45 in the United States. The exchange rate between the U.S. dollar and the Swiss franc (SFr) is $0.8245 per Swiss franc. Suppose the price of the scanner in Switzerland was actually SFr 63.50. Assuming no transaction costs, transportation costs, or import restrictions, PPP predicts that the demand would (decrease or Increase) in Switzerland.arrow_forwardA computer costs $500 in the United States. The same model costs €550 inFrance. If purchasing power parity holds, what is the spot exchange ratebetween the euro and the dollar?arrow_forward
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