Foreign Exchange Exercises

Circle the right answer

1. YEN 88.5000/USD represents a direct quotation on (the Japanese Yen / the U.S. dollar).

2. YEN/USD is a quotation in (American terms / European terms).

3. U.S. dollars held on account in a bank in Japan are termed (Euroyen accounts / Eurodollars account)

4. If the spot rate between the Japanese yen and the U.S. dollar is YEN 125/USD, and the 360 day forward rate is YEN 120/USD, then the yen is selling forward at a (discount of 4.17% / premium of 4.17 %).

5. The price of a table lamp in the U.S. is $40. The price of an identical lamp in India is RS 2000. The ideal exchange rate which would equalize the purchasing power should be ($ 50/RS / RS 50/$).

Calculate the answer

1. An American wants to use German currency to buy a British Range Rover. What is the cross rate between the British Pound and the German Deutsche mark if DM 0.5046/USD and GBP1.5495/USD? How much will he have to pay in Deutsche Marks to pay for his 10,000 Pounds car?

 
2. The British inflation is 2 percent a year and the U.S. inflation is 5 percent a year. If the current exchange rate is GBP 0.616/USD and no other factors influence the exchange rate, in one year, what would be the expected exchange rate?

 
3. If the spot rate between the French Franc and the U.S. dollar is FRF 6.456/USD, and the spot rate between the Swiss Franc and the U.S. dollar is 1.4954, what is the cross rate between the Swiss Franc and the French Franc?

 
4. If the spot rate is DEM 1.600/USD, and the 90-day Eurocurrency rates for the DEM and USD are 3 % and 6 % respectively, what is the 60-day forward rate?

• Letter of credit for guaranteed payment
• Hedging
• Risk sharing
• Multiple production sites
• Swap markets
• interest rate swap
• currency swap

• capital budgeting
• capital structure
• working capital and cash flow management

• netting
• cash pooling
• leads and lags
• reinvoicing
• internal bank