Financial Markets and Institutions
Financial Markets and Institutions
6th Edition
ISBN: 9780077641825
Author: SAUNDERS
Publisher: Mcgraw-Hill Course Content Delivery
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Chapter 9, Problem 16P

a)

Summary Introduction

To determine: Net exposure stated in Country S francs.

a)

Expert Solution
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Explanation of Solution

Given information:

An FI holds Country S francs of 134,394 foreign exchange assets and 53,758 in foreign exchange liabilities.

It has conducted foreign exchange trading and bought 10,752 and sold 16,127.

Calculation of net exposure in Sfs:

Netexposure=Foreignexchangeassetsforeignexchangeliabilities+ foreign exchange boughtforeign exchange sold=Sf134,394Sf53,758+Sf10,752Sf16,127=Sf75,261

Hence, net exposure stated in Sfs is Sf75, 261

Calculation of net exposure in dollars:

Netexposure=Foreignexchangeassetsforeignexchangeliabilities+ foreign exchange boughtforeign exchange sold=$125,000$50,000+$10,000$15,000=$70,000

Hence, net exposure stated in dollars is $70,000

b)

Summary Introduction

To determine: Net exposure stated in Country B pound.

b)

Expert Solution
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Explanation of Solution

Given information:

An FI holds Country B pounds of 30,488 foreign exchange assets and 13,415 in foreign exchange liabilities.

It has conducted foreign exchange trading and bought £9,146 and sold £12,195

Calculation of net exposure in pounds:

Netexposure=Foreignexchangeassetsforeignexchangeliabilities+ foreign exchange boughtforeign exchange sold=£30,488£13,415+£9,146£12,195=£14,024

Hence, net exposure stated in pounds is £14,024

Calculation of net exposure in dollars:

Netexposure=Foreignexchangeassetsforeignexchangeliabilities+ foreign exchange boughtforeign exchange sold=$50,000$22,001+$15,000$20,000=$22,999

Hence, net exposure stated in dollars is $22,999

c)

Summary Introduction

To determine: Net exposure stated in Country J yen.

c)

Expert Solution
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Explanation of Solution

Given information:

An FI holds Country J yens of 7,075,472 foreign exchange assets and 2,830,189 in foreign exchange liabilities.

It has conducted foreign exchange trading and bought ¥1,132,075 and sold ¥8,301,887

Calculation of net exposure in ¥:

Netexposure=Foreignexchangeassetsforeignexchangeliabilities+ foreign exchange boughtforeign exchange sold=¥7,075,472¥2,830,189+¥1,132,075¥8,301,887=¥2,924,529

Hence, net exposure stated in yen is -¥2,924,529

Calculation of net exposure in dollars:

Netexposure=Foreignexchangeassetsforeignexchangeliabilities+ foreign exchange boughtforeign exchange sold=$75,000$30,000+$12,000$88,000=$31,000

Hence, net exposure stated in dollars is -$31,000

d)

Summary Introduction

To determine: Expected loss or gain when Sf exchange rate appreciated by 1%.

d)

Expert Solution
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Explanation of Solution

Calculation of gain or loss:

When assets are greater than liabilities, then there arises a gain.

Gain=SF75,261×0.01or$70,000×0.01=SF7,261or$7,000

Therefore, gain is SF7, 261 or $7,000

e)

Summary Introduction

To determine: Expected loss or gain when £ exchange rate appreciated by 1%.

e)

Expert Solution
Check Mark

Explanation of Solution

Calculation of gain or loss:

When assets are greater than liabilities, then there arises a gain.

Gain=£14,024×0.01or$22,999×0.01=£140or$230

Therefore, gain is £140 or $230

f)

Summary Introduction

To determine: Expected loss or gain when ¥ exchange rate appreciated by 2%.

f)

Expert Solution
Check Mark

Explanation of Solution

Calculation of gain or loss:

Loss=¥2,924,529×0.02or$31,000×0.02=¥58,491or$620

Therefore, gain is -¥58,491 or -$620

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