Chapter 3 questions - words, the cost of borrowing will be...

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Chapter 3 Questions Exchange Rate Effects on Investing Explain how the appreciation of the Australian dollar against the U.S. dollar would affect the return to a U.S. firm that invested in an Australian money market security. If the Australian dollar appreciates against the US dollar, this means that the U.S. dollar cannot buy as much as it used t in Australia. firm purchased the Australian dollars to ... against the U.S. dollar would affect the return to a U.S. firm that. .. Exchange Rate Effects on Borrowing Explain how the appreciation of the Japanese yen against the U.S. dollar would affect the return to a U.S. firm that borrowed Japanese yen and used the proceeds for a U.S. project. The appreciation of the YEN against the US dollar would affect the return to a US firm that would borrow YEN because it would cost more due to the appreciation of the YEN. In other
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Unformatted text preview: words, the cost of borrowing will be higher. Bid/ask Spread Utah Bank’s bid price for Canadian dollars is $.7938 and its asking price is $.81. What is the bid/ ask percentage spread? ask – bid / ask .81 - .7938 = .0162 / .80= .02 * 100 = 2% (page 59). Indirect Exchange Rate If the direct exchange rate of the euro is worth $1.25, what is the indirect rate of the euro? That is, what is the value of a dollar in euros? 1/1.25 = .8 which means that .8 euros makes $1 (page 61). Cross Exchange Rate Assume Poland’s currency (the zloty) is worth $.17 and the Japanese yen is worth $.008. What is the cross rate of the zloty with respect to yen? That is, how many yen equal a zloty? YEN / Zolty .008 / .17 = .0588 .0588 yen equal a zloty (page 64). 4 3 6 10 11...
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This note was uploaded on 05/18/2010 for the course FIN 540 taught by Professor Dow during the Spring '10 term at Southeast University, China.

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