Share
Explore BrainMass

# Money Exchange

Shown below are exchange rates for several currencies in relation to the U.S. dollar.

Euro Swiss Franc Mexican Peso
Spot rate 0.90 1.70 11.00
30-day forward rate 0.92 1.80 10.95
60-day forward rate 0.93 1.85 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?

#### Solution Preview

Money Exchange
Shown below are exchange rates for several currencies in relation to the U.S. dollar.

Euro Swiss Franc Mexican Peso

Spot rate 0.90 1.70 11.00
30-day forward rate 0.92 1.80 10.95
60-day forward rate 0.93 1.85 10.70

a. Is the euro appreciating or depreciating against the U.S. dollar? Why?

In order to find the appreciation or depreciation of currency, you should use the following formula:
Forward rate - Spot rate x Number of time/year
Spot rate
30-day forward rate 0.92 - 0.90 x 12 = 26.67%
0.90
60-day forward rate 0.93 - 0.90 x 6 = 20%
0.90
\$1 = euro 0.90
The euro is depreciating against U.S. dollar because its 30-day and 60-day ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer the euro, Swiss franc, Mexican peso appreciating or depreciating against the U.S. dollar, and using cross-rates.

\$2.19