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Foreign Exchange and International Finance Problem Set

A problem set exploring foreign exchange markets and international finance strategies.

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    Foreign Exchange and International Finance Problem Set, page 1Foreign Exchange and International Finance Problem SetProblem 19-1Exchange rateIf British pounds sell for $1.99 (U.S.) per pound, what should dollars sell for in pounds perdollar? Round your answer to the nearest pence. Note: A pence is1/100th of a pound.________poundsperdollarAnswer:2.eBookeBookeBookeBookeBookeBookeBookeBookeBookeBookProblem 19-2Cross ratesA currency trader observes that in the spot exchange market, 1 U.S. dollar can be exchangedfor 4.93 Israeli shekels or for 101.48 Japanese yen. What is the cross-exchange rate betweenthe yen and the shekel; that is, how many yen would you receive for every shekelexchanged? Round your answer to the nearest sen. Note: A sen is 1/100th of a yen.________yenpershekelAnswer:

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    Foreign Exchange and International Finance Problem Set, page 2

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    Foreign Exchange and International Finance Problem Set, page 33.eBookeBookeBookeBookeBookeBookeBookeBookeBookeBookProblem 19-3Interest rate paritySix-month T-bills have anominal rate of 5%, while default-free Japanese bonds that maturein 6 months have a nominal rate of 2%. In the spot exchange market, 1 yen equals $0.007.If interest rate parity holds, what is the 6-month forward exchange rate? Round your answerto five decimal places.________Answer:

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    Foreign Exchange and International Finance Problem Set, page 44.eBookeBookeBookeBookeBookeBookeBookeBookeBookeBookProblem 19-5Exchange ratesThe table lists foreign exchange rates for August 3, 2011. On that day, how many dollars

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    Foreign Exchange and International Finance Problem Set, page 5would be required to purchase 700 units of each of the following: British pounds, Canadiandollars, EMU euros, Japanese yen, Mexican pesos, and Swedish kronas? Round your answersto the nearest cent.Sample Exchange Rates: Wednesday, August 3, 2011Direct Quotation:U.S. Dollars Required to BuyOne Unit of Foreign Currency(1)Indirect Quotation:Number of Units of ForeignCurrency per U.S. Dollar(2)Australian dollar$1.07560.9297Brazilian real$0.63851.5662British pound1.64260.6088Canadian dollar1.03920.9622Chinese yuan0.15536.4392Danish krone0.19235.2004Euro1.43230.6982Hungarian forint0.00527189.75Israeli shekel0.28873.4641Japanese yen0.0129777477.06Mexican peso0.084611.8205South African rand0.14886.7217Swedish krona0.15776.3420Swiss franc1.29830.7703Venezuelan bolivar fuerte0.229885064.3500Note:Column 2 equals 1.0 divided byColumn 1. However, rounding differences do occur.Source: Adapted fromThe Wall Street Journal(online.wsj.com), August 4, 2011.British pounds$________Canadian dollars$________EMU euros$________Japanese yen$________Mexican pesos$________Swedish kronas$________Answer:

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    Foreign Exchange and International Finance Problem Set, page 65.eBookeBookeBookeBookeBookeBookeBookeBookeBookeBook

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