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# Exchange rates

See attached file for full problem description.

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. \$
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