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Exercises

The document contains calculations related to exchange rates and interest rates across different currencies, including USD, GBP, SEK, and JPY. It discusses the impact of interest rates on forward exchange rates and provides examples of currency conversions and profits from currency trading. Additionally, it touches on purchasing power parity (PPP) and inflation effects on exchange rates.

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14 views5 pages

Exercises

The document contains calculations related to exchange rates and interest rates across different currencies, including USD, GBP, SEK, and JPY. It discusses the impact of interest rates on forward exchange rates and provides examples of currency conversions and profits from currency trading. Additionally, it touches on purchasing power parity (PPP) and inflation effects on exchange rates.

Uploaded by

diana.ayala.av
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

CHAPTER 12

1. E= 1$

F = 1.05 $

Ieu=10%

Ius=x

 Ius = Ieu+ (F-E)/E


 Ius = 0.1 + (1.05-1) /1
 Ius= 0,15 = 15%

2. 1 Pound = 2,411 dollars in New York

2.411 dollars = 2.411*1.05 euros = 2.53€ in Paris

2.53 euros = 2.53*(1/2.50) pounds = 1,012 pounds in London

3. £= 0,5*$
£=0.2*SF
 0,5$ = 0,2SF  SF/$ = 0,5/0,2=2.5

CHAPTER 14

1. iUK = 6%
iUS = 6%
E= Price of pound in $=2$
F=?

F=2* (0,06-0,06+1)=2

2. Ius = 7%
Iuk = 6%
E = 2,10 pound/ usd
Exp(Et+1) = F=?

F= 2,1*(0,07-0,06+1) = 2,12

If 2,1 -> 100%


--2,12 -> ? 2,12 is 101% -> the change is 1%
3. E=100 y/usd = 0,01 usd/yen
I usd = 6%
I yen = 1%
F=?

100 yen = 1 usd

1 yen = ? usd  0,01 usd

F = E*(I usd – I yen + 1) = 0,01*(0,06-0,01+1) = 0,0105 usd

0,0105 usd -> 1 yen

1 usd -> x yen ?  1*1/0,0105 = 95,2 usd

4. I Swe = 11% a year


I us = 5% a year
E = 5,80 sek per usd
F = 5,88 sek per usd
Time frame : 3 months = ¼ of a year

- Take loan of 10 mill in US -> change to sek with spot exchange rate (now)

1 usd – 5,80 sek

10 mill usd – x?  5,80 * 10 000 000 / 1 = 58 000 000 sek

- Apply Swedish interest for 3 months -> 11% is 12 months -> 2,75% is 3 months

58 mill – 100%

X – 2,75%  1 595 000 sek

- Total sek after 3 months = 59 595 000 sek

- Quantity to pay in US in the future, using Forward exchange rate

1 usd – 5,88 sek

10 mill usd – x?  5,88*10 mill / 1 = 58 800 000 sek

- Interests in US for 3 months of loan, if 5% is 12 months, then 1,25% is 3 months


58,8 mill -> 100%
X -> 1,25% 735 000 sek

- Total to pay in 3 months 59 535 000

- The difference is a profit of 60 000 sek


Chapter 15

1. 3,61 usd -> 3,405 eu


X -> 1 eu  3,61*1/3,405 = 1.06 usd

2. The PPP holds -> E start = P/Pf = 60 eur / 60 usd = 1


E final = (p+ 10%p) / Pf = 66 eur / 60 usd = 1.1

3. E start = 13,5 mex


Mex inflation 12%
US inflation 3%

E^= 12% - 3% = 9%

4. E = 140 y/€
P= 2 800 000 yen
Pf= 10 000€
 Er = 140 * (10 000/ 2 800 000)= 0,5

5. E^= P^-Pf ^ = 5,66 – 2,74 = 2,92%

-domestic price 106 – 100%

111.9996 –x%?  105.66%  the increase in domestic price was 5,66% = P^

-foreign price 102 -100%

104,7948 – x%?  102,74% -> the increase in foreign country = 2,74%= Pf^
Chapter 16

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