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# Express Travel Foreign currency conversions

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Express Travel owns a travel agency that operates in London. The account balances in pounds for the subsidiary are in the attachment.

The subsidiary did not make any purchases of office supplies or plant assets during the year. Revenues were earned and operating expenses, other than depreciation and supplies used, were incurred evenly throughout the year.

a. prepare a schedule to compute the translations adjustment for the year, assuming foreign entity's functional currency is the pound.
b. prepare a schedule compute the translation gain or loss, assuming the foreign entity's functional currency is the US dollar.
c. explain why the results differ under the two methods.

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#### Solution Summary

This solution provides a detailed step by step explanation of the given finance problem, which is calculated in Excel.

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## B. What does the term arbitrage profits mean? f. An American business pays \$20,000, \$5,000, and \$15,000 to suppliers in, respectively, Japan, Switzerland, and Canada. How much, in local currencies, do the suppliers receive? g. Compute the indirect quote for the spot and forward Canadian dollar contract.

B. What does the term arbitrage profits mean?
Use the following data in your responses to the remaining questions:

Selling Quotes for Foreign Currencies in New York

COUNTRY?CURRENCY CONTRACT \$/FOREIGN
Canada - dollar (CAD) Spot 0.8450
30 day 0.8415
90 day 0.8390

Japan - yen (JPY) Spot 0.004700
30 day 0.004750
90 day 0.004820

Switzerland - franc (CHF) Spot 0.5150
30 day 0.5182
90 day 0.5328

f. An American business pays \$20,000, \$5,000, and \$15,000 to suppliers in, respectively, Japan, Switzerland, and Canada. How much, in local currencies, do the suppliers receive?
g. Compute the indirect quote for the spot and forward Canadian dollar contract.

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** Attached ** you will find the PDF document to some practice study problems that I am still trying to grasp and understand. These are the ones that I did not know how to do. Your help is greatly appreciated.

Chapter 17 of the text Foundations of Finance, by Keown

Comprehensive Mini Case Problem found in Chapter 17:

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