Prepare answers to Problems 1, 7, and 20 in Section Two.
1. The $/€ exchange rate is €1 = $0.95, and the €/SFr exchange
rate is SFr 1 = €0.71. What is the SFr/$ exchange rate?
7. In 1995, one dollar bought ¥80. In 2000, it bought about ¥110.
A. What was the dollar value of the yen in 1995? What was the yen's
dollar value in 2000?
B. By what percent has the yen fallen in value between 1995 and 2000?
C. By what percent has the dollar risen in value between 1995 and 2000?
Suppose that three-month interest rates (annualized) in Japan and the
United States are 7 percent and 9 percent, respectively. If the spot
rate is Ґ142:$1 and the ninety-day forward rate is Ґ139:$1:
A. Where would you invest?
B. Where would you borrow?
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What arbitrage opportunity do these figures present?
D. Assuming no transaction costs, what would be your arbitrage profit
per dollar or dollar-equivalent borrowed?
Business Homework Solutions
#74596
International Finance - Exchange rates
1. The $/Euro exchange rate is Euro= $0.95, and the Euro/SFr exchange rate is SFr 1 = Euro 0.71. What is the SFr/$ exchange rate?
7. In 1995, one dollar bought 80. In 2000, it bought about 110.
A. What was the dollar value of the yen in 1995? What was the yen's dollar value in 2000?
B. By what percent has the yen fallen in value between 1995 and 2000?
C. By what percent has the dollar risen in value between 1995 and 2000?
20. Suppose that three-month interest rates (annualized) in Japan and the United States are 7 percent and 9 percent, respectively. If the spot rate is 142:$1 and the ninety-day forward rate is 139:$1:
A. Where would you invest?
B. Where would you borrow?
C. What arbitrage opportunity do these figures present?
D. Assuming no transaction costs, what would be your arbitrage profit per dollar or dollar-equivalent borrowed?
The solution provides answers to 3 questions on interest rates.
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