Answer the following questions: 1. The exchange rate of Swiss Franc is $1.12/SF,
ID: 2638303 • Letter: A
Question
Answer the following questions: 1. The exchange rate of Swiss Franc is $1.12/SF, the exchange rate of euro is $1.25/euro and the exchange rate between Japanese yen and US dollar is 120/$. a. What is the cross exchange rate of yen with respect to Swiss franc? b. What is the cross exchange rate of Swiss franc with respect to euro? c. What is the cross exchange rate of yen with respect to euro? 2. The ABC Company's share (based in Mexico) is priced at 800 peso per share. The spot rate of the peso is $0.069. You expect that the stock price of ABC Company will increase by 10% next year. You also expect that the Mexican peso will depreciate against the U.S. dollar by 5% during the next year. You bought 100 American depository receipts (ADRs) that represent ABC stock. Each share that you own represents one share of the stock traded on the Mexican stock exchange. ABC company paid a dividend of 25 peso per share before you sold the share at the end of the year. What is the US dollar cash you will receive after one year? What is your rate of return in peso? What is your rate of return in dollar? Show detail calculations to receive credit. If you do the assignment in excel it will be easier to show the calculations. If you write in word, you will need to write down each step of calculations.Explanation / Answer
1.Cross exchange rate of Yen with respect to Swiss Franc:
One swiss Franc =$1.12
Given exchange rate of yen and US dollar = 120 yen/1$
It means 1 $ = 120 Yen
So, one Swiss franc = 120 * 1.12 = 134.4 yen
Swiss franc/ yen = 134.4/SF
1) b) Cross exchange rate of Swiss Franc with respect to EURO:
Given One swiss Franc =$1.12
One EURO = $1.25
So, one $ = 1 Euro/1.25 = .80euro. i.e., $=.80 Euro
Swiss Franc with respect to Euro = 1.12* .80 =.896 Euros
It means to get one Swiss Franc 0.896 Euro has to be given.
1 C) Cross exchange rate of Yen with respect to Euro:
Given exchange rate of yen and US dollar = 120 yen/1$
It means 1 $ = 120 Yen and one Yen=1/120 =.00833$
One EURO = $1.25
So, one $ = 1 Euro/1.25 = .80euro. i.e., $=.80 Euro
Yen = .00833 *.80 = .006667 Euros
it means one Euro = (1/.00667) yen =150 yens.
yen to Euro =Yen/150.
Answer for Point 2:
Share price of ABC company is 800 peso per share. Expected increase in Stock price is 10% . So, revised price of ABC company is 800 *110% =880 peso.
Given one Peso = $0.069. Peso depreciate by 5% in the next year. So, revised exchange rate = $0.069 * 95% =0.06555.
Number of Shares owned = 100 ADRs = 100 shares of ABC compnay.
Dividend paid is 25 Peso per share. So, total dividend received in Peso currency = 25* 100=2500 Peso.
US dollar Cash received after one year:
100 shares of peso sold at 880 peso. Amount received in Peso currency is 880*100 =88,000 Peso.
Dividend in Peso = 2500. Total proceeds to be converted to Dollars =88,000 + 2500 = 90,500
One Peso = $0.06555
Cash received in Dollars = 90,500 * 0.06555 = $5,935.28
Rate of return in Peso:
(25/880)*100 =2.84%
Rate of return in Dollar:
Value of ABC shares in Dollars = 88000 * 0.06555 = $5,768.4
Dividend in Dollars = 2500 * 0.06555 =163.875.
Rate of return in Dollar = ($163.875/$5768.4)* 100 = 2.84%
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