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Converting Foreign Currencies

Country Currency Contract $/Foreign Currency

Canada - dollar Spot .8437
30 day .8417
90 day .8395

Japan - yen Spot .004684
30 day .004717
90 day .004781

Switzerland - fran Spot .5139
30 day .5169
90 day .5315

*Converting currency - American business needs to pay (a) 10,000 Canadian dollars, (b) 2 million yen (c) 50,000 Swiss francs to businesses abroad. What are the dollar payments to the different countries?

*Converting currency - American business pays $10,000, $15000, and $20,000 to suppliers in Japan, Switzerland and Canada. How much in local currency do the suppliers receive?

*Indirect quotes - Compute the indirect quote for the spot and forward Canadian dollar, yen and Swiss franc contracts.

*Bid, spot and forward rates - The spreads on the contracts as a % of the asked rates are 2% for yen, 3% for Canadian dollars and 5% for Swiss francs. Demonstrate in a table similar to the one above the bid rates for the different spot and forward rates.

Solution Preview

Please see attached file
Country Currency Contract $/Foregin Currency

Canada - dollar (CAD)
Spot 0.8437
30 day 0.8417
90 day 0.8395

Japan - yen (JPY)
Spot 0.004684
30 day 0.004717
90 day 0.004781

Switzerland - franc (CHF)
Spot 0.5139
30 day 0.5169
90 day 0.5315

*Converting currency - American business needs to pay (a) 10,000 Canadian dollars, (b) 2 million yen (c) 50,000 Swiss francs to businesses abroad. What are the dollar payments to the different countries?

We will use spot rates for calculations as nothing has been said about when the payments are to be made-so we assume that it is today

CAD 10,000 = $8,437 USD =10000 x0.8437
JPY 2,000,000 = $9,368 USD =2000000 ...

Solution Summary

The solution gives the values of i) equivalent amount of US dollar payments for the payments made in Canadian dollars, yen and Swiss francs ii) equivalent local currency payments received in Canadian dollars, yen and Swiss francs for payments made in US dollars. It also converts direct quotes to indirect quotes and gives Bid, spot and forward rates.

$2.19