Assignment chapter 7

# Assignment chapter 7 - Assignmentchapter7 2.Yes a traveler...

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Assignment chapter 7 2.  Yes, a traveler can purchase New Zealand dollars at Bank Y for \$.40 and sell them to Bank X for \$.401. With \$1 million available, 2.5 million New Zealand dollars could be purchased at Bank Y. These New Zealand dollars could then be sold to Bank X for \$1,002,500, thereby generating a profit of \$2,500 4.   Yes. The appropriate cross exchange rate should be 1 Canadian dollar = 3 New Zealand dollars. Thus, the actual value of the Canadian dollars in terms of New Zealand dollars is more than what it should be. One could obtain Canadian dollars with U.S. dollars, sell the Canadian dollars for New Zealand dollars and then exchange New Zealand dollars for U.S. dollars. With \$1,000,000, this strategy would generate \$1,006,667 thereby representing a profit of \$6,667.[\$1,000,000/\$.90 = C\$1,111,111 × 3.02 = NZ\$3,355,556 × \$.30 = \$1,006,667] 6. 1,000,000/\$.80 = C\$1,250,000  ×  (1.04)= C\$1,300,000  ×  \$.79= \$1,027,000 Yield = (\$1,027,000 - \$1,000,000)/\$1,000,000 = 2.7%, which exceeds the yield in  theU.S. over the 90-day period 7.          MXP1,000,000  ×  \$.100 = \$100,000  ×  (1.05) = \$105,000/\$.098 =  MXP1,071,429Mexican investors would generate a yield of about 7.1% ([MXP1,071,429

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