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- Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to be paid in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. a. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw receive after it exchanged yen for U.S. dollars? b. What is the difference (in dollars) between what DeGraw could have received had they asked for payment immediately (before the devaluation of the yen) instead of six months later?Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting EUR/USD at 1.2459 and Credit Suisse is offering USD/CHF at 0.8850. You learn that UBS is making a direct market between the Swiss franc and the euro, with a current EUR/CHF of 1.1048. (Ignore bid-ask spreads for this problem.) Assume you have $5,000,000 with which to conduct the arbitrage. What is the EUR/CHF rate that eliminate triangular arbitrage? (X.XXXX)Assume that $1 equals 100 yen (¥). A Japanese visitor to the United States wants to pay her $100 hotel bill. How many yen should she exchange in order to have enough dollars to pay the bill? A. ¥0.01 B. ¥10 C. ¥10,000 D. ¥1,000
- A foreign exchange trader with a U.S. bank took a speculative long position of £6,000,000 when the GBP/USD was 1.3233. Subsequently, the exchange rate has changed to 1.3342. If the position is closed now, what is the profit/loss arising from that trade? (USD, no cents)In 30 days Radio Shack must pay yen to a Japanese supplier for a shipment of radios arriving then. Radio Shack can sell each radio for $100 and must pay its supplier ¥9,000 per radio; its profit depends on the dollar/ yen exchange rate. The current spot exchange rate, E$/¥ = $0.0105 per yen. Radio Shack will not have the funds to pay the supplier until the radios arrive and are sold. Over the next 30 days, the dollar may depreciate to $0.0115 per yen, and Radio Shack may incur a loss. Describe how Radio Shack can use a forward exchange deal to insure against the possibility that the depreciation of U.S. currency will turn a profitable importing deal into a loss.Today the euro costs $1.35. If the dollar gains strength against the euro at a rate of 3% per year, how much will the euro cost (in dollars) after five years (a) $1.20 (b) $1.41 (c) $1.16 (d) $1.09.
- Suppose the cost of purchasing euros (EUR) and Canadian dollars (CAD) at the airport are given by the following bid / ask price: EUR 1 = USD 1.32 / 1.47 CAD 1 = USD 0.85 / 0.97 How much USD is required to purchase EUR 2,000? How much USD is required to purchase CAD 1,500? How much USD will you get if you’d like to sell EUR 500 to the airport’s currency exchange store? How much USD will you get if you’d like to sell CAD 500 to the airport’s currency exchange store? Calculate the percent spread or margin for USDEUR. Calculate the percent spread or margin for USDCAD.A US investor sees an arbitrage opportunity in the currency markets. The spot exchange rate between the Swiss Franc and US Dollar is 1.0404 ($ per CHF). Assume the continuously compounded interest rates in the US and Switzerland are 0.25% and 0%, respectively. The 3-month currency forward price is 1.0300 ($ per CHF). What is the theoretically correct forward price. What is the investor’s total profit (in CHF), assuming she begins by borrowing 1,000 CHF? ?Your firm is based in Mexico and you have USD denominated debt. The firm has an interest payment of USD 475,000 is due and the bank is quoting an exchange rate of USD/MXN 18.0912 - 18.1291. The firm needs to buy USD to make the interest payment. How much will it cost in MXN? A. MXN 2,625,586 B. MXN 12,229,290 C. MXN 8,611,323 D. MXN 8,593,320
- Hedging is one strategy or process that is used to of manage both exchange rate and interest rate exposures to MNCs. Owing to the above, American Airlines the entity in which you are the financial advisor is trying to decide how to go about hedging €70 million in ticket sales receivable in180 days. The following exchange /interest rates are available: Spot rate $0.6433-42/€ 180-day forward rate $0.6578-99/€ Euro 180-day interest rate (p.a.) 4.01%-3.97% U.S.$ 180-day interest rate (p.a.) 8.01%-7.98%What is the financial impact on the Airline should they opt to remain in unhedged position.Elaborate more on your answer.A UK-manufactured car sells for GBP 14.000. A french-manufactured car sells for EUR 15.750. If the EUR/GBP exchange rate is 1.09, how much does the british-made car cost in EUR? a. 12,923 b. 13,462 c. 18,427 d. 15,260A UK-manufactured car sells for GBP 14.000. A french-manufactured car sells for EUR 15.750. If the EUR/GBP exchange rate is 1.09, how much does the french-made car cost in GBP? a. 17,162 b. 14,450 c. 13,462 d. 18,427