Chapter 3 questions

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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