First: Foreign Exchange Rates 1) Cross rates WITHOUT transactions cost: The S/DM
ID: 2796901 • Letter: F
Question
First: Foreign Exchange Rates 1) Cross rates WITHOUT transactions cost: The S/DM exchange rate is DMI S0.35 and the DM/FF exchange rate is FFI = DM 0.31. What is the FFS exchange rate? a) 3.226 French francs per dollar b) 1.129 French francs per dollar c) 0.886 French francs per dollar d) 9.217 French francs per dollar 2) Cros rates WITISI transaction costs Suppose the following spot direct quotess *for the Swedish krona is $0.1395-99/Krona and; * for the French franc is $0.1130-33/Franc. What is the direct quote for the Krona in Paris (i.e., Franc/Krona exchange rate)? a) 1.2312-81 b) 1.2435-37 c) 0.0806-11 d) 0.0973-81 3) Suppose the quote for DM is DM 2.9865-92. Then the percent (Bid-Ask) spread is a) 2.31% b) 0.97% c) 0.62% d) 0.09% 4) During 1995, the yen went from $0.0125/Yen to $0.0095238/Yen. By how much did the dollar appreciate against the yen? a) 23.81% b) 31.25% c) 15.67% d) 40.78%Explanation / Answer
1. 1 DM = $ 0.35 and 1 FF = 0.31 DM
Assume NO transaction Cost
1 FF = 0.31 * 0.35 $
1 FF = 0.1085 $
1 $ = 1/0.1085 FF
1 S = 9.22 FF ( 9.22 French Franks Per Dollar) Option d
2. Swdish Krona is $ 0.1395-99/ Krona
French Frank is $ 0.1130-33/ French Franc
Accordingly, Direct Quote for Krona in French Franc = 0.1395/0.1133= 1.2312
and ask price for Krona in French Franc = 0.1399/0.1130 = 1.2381
Direct Quote for Krona is 1.2312/1.2381 French Franc Option a
3. Suppose quote for DM is DM 2.9865-92
Bid Price = 2.9865
Ask Price = 2.9892
Difference Ask Price - Bid Price = 0.0027
% Bid Ask Spread = Differnce/Bid Price * 100 % = 0.0027/2.9865 * 100%
= 0.09%
Option d
4. During 1995, Yen went from $ 0.0125 per Yen to $ 0.0095328 per Yen. Here the Dollar Appreciated against the Yen or Yen Depreciated against the Dollar as now it rquires lesser amount of Dollars to purchase 1 Unit of Yen
To calsulate % of Appreciation of Dollar we will first conver rate into Yen terms i.e. Yen per Dollar
Initial rate 1 Yen = $0.0125
1 $ = 80 Yen
Changed rate 1 Yen = 0.0095328
1 $ = 104.90 Yen
% Depreciation of Yen = (104.90-80.00)/80.00 * 100
= 31%
Dollar Appreciated 31.25% against Yen. Option b
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