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# Converting Foreign Currencies

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Country Currency Contract \$/Foreign Currency

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

Country Currency Contract \$/Foregin Currency

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
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## Converting foreign currency rates

Use the information in Figure 21.1 to answer the following questions:

a. £320 is worth \$ . (Round your answer to 2 decimal places. (e.g., 32.16))

b. £320 is worth SF . Therefore, you would rather have . (Round your answer to 4 decimal places. (e.g., 32.1616))

c. The cross-rate for Swiss francs in terms of British pounds is SF/£ . The cross-rate for British pounds in terms of Swiss francs is £/SF . (Round your answers to 4 decimal places. (e.g., 32.1616))

Use the information in Figure 21.1 to answer the following questions:

a. If you have \$265, you can get euros. (Round your answer to 2 decimal places. (e.g., 32.16))

b. One euro is worth \$ . (Round your answer to 4 decimal places. (e.g., 32.1616))

c. If you have 13 million euros, you have \$ . (Enter your answer in dollars, not millions of dollars, i.e. 1,234,567.)

d. The Singapore dollar is worth that the New Zealand dollar.

e. The Mexican peso is worth than the Chilean peso.

f. You can get Mexico pesos for a Euro. This type of rate is called . (Round your answer to 4 decimal places. (e.g., 32.1616))

g. Which currency per dollar is the most valuable and which is the least valuable? (Round your most valuable to 4 decimal places and least valuable to 6 decimal places. (e.g., 32.1616))

Most valuable: = \$

Least valuable: = \$

Suppose the current exchange rate for the Polish zloty is Z 2.77. The expected exchange rate in three years is Z 2.83. What is the difference in the annual inflation rates for the United States and Poland over this period? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Difference in annual inflation rates %

Suppose the spot and three-month forward rates for the yen are ¥79.20 and ¥78.64, respectively.

b. What would you estimate is the difference between the annual inflation rates of the United States and Japan? (Negative amount should be indicated by a minus sign. Round your answer to 1 decimal place. (e.g., 32.16))

Annual inflation rates %

Suppose the spot exchange rate for the Canadian dollar is Can\$1.07 and the six-month forward rate is Can\$1.09.

a. Which is worth more, a U.S. dollar or a Canadian dollar?

U.S. dollar

b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can\$2.60? (Round your answer to 3 decimal places. (e.g., 32.161))

Cost in U.S. dollars \$

c. Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?

Discount

d. Which currency is expected to appreciate in value?

Canandian dollar

U.S. dollar

e. Which country do you think has higher interest rates - the United States or Canada?