QUESTION 9 In order to calculate a cross exchange rate between currencies X and

Question

QUESTION 9 In order to calculate a cross exchange rate between currencies X and Y, both X and Y must have a known exchange rate with a third currency O True O False QUESTION 10 Use the following information to answer the next two questions /C$ £1.40 1.44 £1.37 Date 7/2 7/3 1.25 1.16 1.18 The pound (2) depreciated against the euro () from 7/1-7/2 O True O False QUESTION 11 Find the percentage appreciation/depreciation of the Canadian dollar from a British citizen's point of view from 7/2-7/3 O 0486 ? .0511 O-.0511 O -.0486

Explanation / Answer

QUESTION 9

True.

A cross exchange rate is the exchange rate between two currencies when it is not available officially. The exchange rate is calculate using a third currency. If the exchange rate between X and Y are not available, but X with Z and Y with Z are available, exchange rate between X and Y can be calculated.

QUESTION 10

True.

on 7/1, 1 Pound = Euro 1.25

on 7/2, 1 Pound = Euro 1.16

Now, on second day you can buy less of Euro with 1 pound than you were able to a day earlier. This means Euro has appreciated or Pound has depreciated.

QUESTION 11

On 7/2, 1 C$ = 1.44 Pound

On 7/3, 1 C$ = 1.37 Pound

Clearly, Euro has appreciated (C$ has depreciated) since you now buy less Euro with 1 C$.

Now, from British citizen's point of view,

On 7/2, 1 Pound = 0.6944 C$ (=1/1.44)

On 7/3, 1 Pound = 0.7299 C$ (=1/1.37)

% Depreciation = (0.7299 - 0.6944)/0.7299 = .0486 (or 4.86%)

SInce depreciated, the correct option is - .0486

On 7/2,

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