Solution: Currency Conversion Problem Set #1
Currency
Quotes
Direct or Indirect ?
Swiss Francs
1 SF for $0.50
Direct
Mexican Pesos
10 MP for 1 USD
Indirect
British pounds
0.75 BP for 1 USD
Indirect
1. $3,000,000 can be converted into 2,250,000 British pounds
3,000,000 x 0.75 = BP 2,250,000
2. SF 1,500,000 can be into 750,000 USD
1,500,000 x 0.50 = $ 750,000
3. MP 600,000 can be converted into 240,000 Swiss Francs
MP 600,000 / 10 = $ 60,000
$ 60,000 / 0.50 = SF 120,000
4a. How many SF does it take to buy 1 BP ?
BPDQ = 1 / 0.75 = 1.33 ; SFDQ = 0.50
BPDQ / SFDQ = 1.33 / 0.50 = SF 2.67
4b. How many BP does it take to buy 1 SF ?
SFDQ / BPDQ = 0.50/1.33 = BP 0.375
Solution: Currency Conversion Problem Set #2
1/1/X0
1/1/X1
DQ/IQ ?
BP quotes
$2.00 per BP
$2.18 per BP
DQ
SF quotes
SF 2.50 per USD
SF 2.00 per USD
IQ
JY quotes
JY 100 per USD
JY 120 per USD
IQ
For the time period: 1/1/X0 - 1/1/X1, please calculate:
1. The percentage appreciation / depreciation of BP in terms of the USD
We need % change in DQ = (2.18 - 2.00) / 2.00 = 0.09 or 9%
2. The percentage appreciation / depreciation of USD in terms of SF
We need % change in IQ = (2.00 - 2.50)/ 2.50 = - 0.20 = - 20%
3. The percentage appreciation / depreciation of JY from the US viewpoint
We need % change in DQ
We have % change in IQ = (120 - 100) / 100 = +0.20 = +20%
% change in DQ = {[100/(100 +20)] - 1}* 100 = - 16.67%
4. Suppose during this time period, the indirect quote for MP decreased by 15%.
(i) By what % did the MP appreciate/depreciate from the US viewpoint?
We need % change in DQ. We have % change in IQ = -15%. .
% change in DQ = { [ 100 / (100-15)] - 1} * 100 = 17.64%
(i) By what % did the USD appreciate/depreciate from the Mexican viewpoint?
We need % change in IQ, which is already given: -15%
Currency Conversion Problem Set #3
Please use the exchange rate quotes provided in the table to answer the questions
below it:
Currency
Quotes on 1/1/X1
Quote on 1/1/X2
1 CD = $0.50
1 CD = $0.54
Swiss francs
SF 1.80 = 1 USD
SF 1.90 = 1 USD
Japanese yen
1 USD = JY 100
1 USD = JY 120
Canadian dollars
a. Based on the 1/1/X2 quote, convert 8,000,000 Canadian dollars into US dollars:
8,000,000 X 0.54 = $ 432,000
b. Based on the 1/1/X2 quotes, convert $25,000,000 into Swiss francs: 25,000,000
X 1.90 = SF 47,500,000
c. During the one-year period, what was the % appreciation /depreciation of the
Japanese yen from the US viewpoint?
% Change in IQ = [(120-100) / 100 ]*100 = +20%
% Change in DQ = [(100/120) - 1]*100 = - 16.67%
d. During the one-year period, what was the % appreciation / depreciation of the US
dollar from the Swiss point of view?
% Change in IQ = [(1.90-1.80) / 1.80 ]*100 = + 5.56%
Bid-Ask Spread Problem Set #1
The following table presents bid and ask quotes for BP from currency dealers in New York and London:
Currency Dealer in
New York
London
Bid Quote for BP
$ 1. 58
$ 1.65
Ask Quote for BP
$ 1. 68
$ 1.70
1. Assume that you dealt with the New York currency dealer only. You converted $100,000 into pounds, and immediately
afterwards sold the pounds for dollars. Estimate the dollar amount you lost in this round trip transaction.
$100,000 /1.68 = BP 59,523.81; BP 59,523.81 * 1.58 = $94,047.62
$94,047.62 - $100,000 = $5,952.38
2. Assume that you dealt with the London currency dealer only. What is the percentage bid-ask spread for this dealer?
[(1.70 - 1.65) / 1.70] * 100 = 2.94%
3. Which dealer (s) would you buy from, and sell to ?
Buy from the lowest ask = New York
Sell to the highest bid = London