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Exchange rates

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8. Assume that you can buy 245 Canadian dollars with 100 British pounds. How much profit can you earn on a triangle arbitrage given the following rates if you start out with 100 U.S. dollars?
Country U.S. $ Equivalent Currency per U.S. $
Canada ? 1.3500
U.K. 1.8305 ?

A.
$0.86
B.
$0.93
C.
$1.09
D.
$1.37
E.
$1.55

9. In the spot market, $1 is currently equal to A$1.42. The expected inflation rate is 3 percent in Australia and 2 percent in the U.S.. What is the expected exchange rate one year from now if relative purchasing power parity exists?
A.
A$1.4058
B.
A$1.4062
C.
A$1.4286
D.
A$1.4342
E.
A$1.4484

10. You are expecting a payment of C$100,000 four years from now. The risk-free rate of return is 3 percent in the U.S. and 4 percent in Canada. The inflation rate is 3 percent in the U.S. and 2 percent in Canada. The current exchange rate is C$1 = $.72. How much will the payment four years from now be worth in U.S. dollars?
A.
$68,887
B.
$69,191
C.
$69,300
D.
$72,222
E.
$74,953

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Solution Preview

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8
100 USD = 135 CAD = 135/245 x 100 Pounds = 55.102 Pounds = 55.102 ...

Solution Summary

Answers to 3 questions. calculations in excel file.

$2.19