Consider the following information for the next 3 problems: Interest rate in the
ID: 2796693 • Letter: C
Question
Consider the following information for the next 3 problems:
Interest rate in the US 4%
Interest rate in Mexico 10%
Mexican peso MXN/USD exchange rate $0.1000
Euro EUR/USD exchange rate $1.11
Swiss Franc CHF/USD exchange rate $1.26
18. You start your trip off with $10,000. You travel to France and spend 4,000 euros. You then exchange your remaining euros for Swiss Francs and travel to Switzerland where you spend 3,000 Swiss francs. You then travel home, to the US and exchange your remaining Swiss francs for dollars. How many dollars do you have remaining? Assume exchange rates remain constant during your trip.
a. $1,030.1
b. $1,236.1
c. $1,483.3
d. $1,780.0
e. $2,136.0 The answer is d. 1,780.0
Explanation / Answer
First Travel to France:
Convert the available USD in Euro using exchange rate
1 Euro = USD 1.11 ( USD / Euro = 1.11 )
Euro / USD = 1/1.11 ( Indirect Quote )
Euros can be purchased with USD 10,000 = 10,000 / 1.11
= Euro 9,009.01
Spent in France = Euros 4,000
Available = Euro 5,009.01
France to Swizerland:-
Available Euro is 5,009.01 convert them into Swiss Francs using exchange rate
Swiss Franc to Euro direct conversion is not available, hence using cross currency rate
Required Euro / Swiss Franc ( How many Euros required to purchase 1 Swiss Franc )
Euro / Swiss Franc = ( Euro / USD ) * ( USD / Swiss Franc )
= ( 1/1.11 ) * ( 1.26 )
= 1.1351
For purchase of 1 Swiss franc we require 1.1351 Euro
5009.01 Euros can purchase = 5,009.01 / 1.1351
= Swiss Franc 4,412.84
Spent = Swiss Franc 3,000
Available = 1,412.84
Return to US:
Convert available Swiss Francs into USD using exchange rate
Exchange rate Swiss Franc / USD = 1.26
1,412.84 Swiss frabc equal to = 1,412.84 * 1.26
= USD 1,780.18
Thus Option D is correct
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