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# Exchange rates

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Intel has the choice of borrowing dollars at 9.5% or yen at 7% for one year. The current exchange rate is ?152=\$1. At what end of year exchange rate would the yen costs of these two loans be equal?

The balance of each loan is compared after one year. Setting these balances equal to each other gives you a ratio which is the desired exchange rate.

#### Solution Preview

For my example suppose we borrow \$1000 at 9.5% costing us \$95 at year's end.
The same ...

#### Solution Summary

Money is borrowed in dollars and in yens at different rates. At what exchange rate will these investments be equal?

\$2.19

## Exchange Rates: Compare 3 currency exchange rates from the standpoint of a U.S. company.

Shown below are exchange rates for several currencies. The rates are shown as indirect rates from the standpoint of a U.S. company.

Euro Swiss Franc Mexican Peso
Spot rate 0.90 1.05 11.00
30-day forward rate 0.92 1.20 10.95
60-day forward rate 0.93 1.25 10.70

a. Is the euro appreciating or depreciating against the U.S. dollar? Why?
b. Is the Swiss franc appreciating or depreciating against the U.S. dollar? Why?
c. Is the Mexican peso appreciating or depreciating against the U.S. dollar? Why?
d. Using cross-rates, how many francs will the euro buy, how many pesos will the franc buy, and how many euro will the peso buy?
e. A U.S. company purchases goods from several foreign companies with payment due in euros, francs, and pesos. Would the company be better off paying now or waiting for 60 days? Why?

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