Purchase Solution

Foreign Exchange Problem Set

Not what you're looking for?

Ask Custom Question

(See attached file for full problem description)

1. The foreign exchange quotations shown below are for the Swiss franc (SF) and the U.S. dollar ($).

U.S. Dollar Equivalent Currency per U.S. Dollar
Wednesday Tuesday Wednesday Tuesday
Bid Ask Bid Ask Bid Ask Bid Ask

Spot 0.6506 0.6508 0.6536 0.6539 1.5365 1.5370 1.5293 1.5300
30 day 0.6496 0.6500 0.6523 0.6529 1.5385 1.5400 1.5315 1.5330
90 day 0.6470 0.6481 0.6499 0.6515 1.5430 1.5457 1.5350 1.5386

Answer the following questions based on the exchange rates shown in the table above.

a. What is the percentage appreciation/depreciation of the SF using indirect ask quotes for the SF?

Type your answer (showing detailed workings) here.

b. What is the percentage premium/discount on the SF using indirect bid quotes for the dollar? Using a 30-day forward rate?

Type your answer (showing detailed workings) here.

c. A customer wishes to buy the SF on Wednesday. What is the exchange rate for this transaction using indirect quotes for the SF?

Type your answer (showing detailed workings) here.

d. Show the point quotes on Wednesday using indirect quotes for the dollar. Without doing any calculation, can you identify the currency on premium? Also, give a rationale for your answer.

Type your answer (showing detailed workings) here.

2. Assume that a bank's bid rate on Japanese yen is $.0041 and its ask rate is $.0043. What is the bid ask percentage spread?

Type your answer (showing detailed workings) here.

3. A Japanese yen is worth $.0080, and a Fijian dollar (F$) is worth $.5900. What is the value of the yen in Fijian dollars (i.e., how many Fijian dollars do you need to buy a yen)?

Type your answer (showing detailed workings) here.

4. The fictional Baylor Bank believes the New Zealand dollar (NZ$) will appreciate over the next five days from $.48 to $.50. The following annual interest rates apply:

Currency Lending Rate Borrowing Rate
U.S. Dollars (US$) 7.10% 7.50%
New Zealand dollar (NZ$) 6.80% 7.25%

Baylor Bank has the capacity to borrow either NZ $10 million or US $5 million. If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the five day period (assuming that it does not use any of its existing consumer deposits to capitalize on its expectations)?
5. Suppose a Swiss bank quotes spot and 90-day forward rates on Swiss franc as
$0.7957-60,8-13.

a. What are the outright 90-day forward rates?

Type your answer (showing detailed workings) here.

b. What is the forward discount or premium associated with the Swiss franc?

Type your answer (showing detailed workings) here.

c. Compute the percentage bid-ask spreads on spot and forward Swiss francs.

Type your answer (showing detailed workings) here.

Attachments
Purchase this Solution
Solution Summary

The solution explains various problems relating to foreign exchange with calculations in an attached Word document.

Purchase this Solution
Free BrainMass Quizzes
Six Sigma for Process Improvement

A high level understanding of Six Sigma and what it is all about. This just gives you a glimpse of Six Sigma which entails more in-depth knowledge of processes and techniques.

Basic Social Media Concepts

The quiz will test your knowledge on basic social media concepts.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

View More Free Quizzes
Related BrainMass Solutions

  • How would a company seek to lessen the foreign exchange risk

    125239 company seek to lessen the foreign exchange risk How would a company seek to lessen the foreign exchange risk for the acquisition of long term assets or liabilities denominated in foreign currency?

  • Factors that make an international company successful

    The company can set up a factory to produce the product in international country in order to ensure constant supply of the product as well as reducing cost in the long run. Last but not least is the foreign exchange strategy.

  • Primary functions of the foreign exchange market and global companies

    The following are the main activities taken by the companies to hedge against the foreign exchange risk: - Set up a foreign exchange risk-management plan. - Monitor the market for short-term opportunities.

  • International Finance Concepts :

    Foreign exchange market refers to the exchange market for global decentralized trading of international currencies. Foreign exchange markets affect the exchange rates.

  • Financial Management

    Likewise, in an 'option contract', the firm accords to purchase foreign exchange on any date between a set time periods, at a rate, set jointly with the bank.

  • Exchange rate stabilization

    Hedges have enabled multinational companies to set up operations in and invest in countries where there is apprehension of foreign exchange rate devaluation. Foreign exchange exposure is protected by taking up suitable position in the same.

  • Global Financial Management: Managing operating exposure and FX risk at Nissan

    He created a philosophy of profits and profitability, and set clear objectives for Nissan. The second step is identifying exposures. This specifically means the three types of foreign exchange risk.

  • WalMart and the Foreign Exchange Problem

    Problem at WalMart (2007), Retrieved February 28, 2008 from http://mgmt339.wordpress.com/2007/03/28/problems-at-wal-mart/ 3. Hedging foreign exchange risk (2007).

  • Global Financial Crisis

    Foreign Exchange Crisis: The foreign exchange crisis of Mexico was caused by the sudden devaluation of the Mexican peso in December 1994.

  • Arbitrage

    Set up an arbitrage scheme with your capital. What is the gain (loss) in dollars? Set up an arbitrage scheme with your capital. What is the gain (loss) in dollars? 1) COUNTRY CONTRACT $/FOREIGN CURRENCY New Zealand?

View More Related Solutions