International_Finance_Project_3

# International_Financ - International Finance Project 3 1 Suppose the spot ask exchange rate Sa(\$| is \$1.90 = 1.00 and the spot bid exchange rate

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International Finance Project 3 _________________________________________________ 1. Suppose the spot ask exchange rate, S a (\$| ), is \$1.90 = 1.00 and the spot bid exchange rate, S b (\$| ), is \$1.89 = 1.00. If you were to buy \$10,000,000 worth of British pounds and then sell them five minutes later, how much of your \$10,000,000 would be "eaten" by the bid-ask spread? A. \$1,000,000 B. \$52,910.05 C. \$100,000 D. \$52,631.58 firt buy \$10m in pounds: \$10,000,000 x ? .00 = ? , 263,157.895 \$1.90 Rational: then sell the pounds for dollars : ? , 263,157.895 x \$1.89 = \$9,947,368.42 ?.00 Net loss to bid – ask spread = \$10,000.000 - \$9,947,368.42 = \$ 52,631.58 2. If the \$/€ bid and ask prices are \$1.50/€ and \$1.51/€, respectively, the corresponding €/\$ bid and ask prices are: A. €0.6667 and €0.6623 B. \$1.51 and \$1.50 C. €0.6623 and €0.6667 D. cannot be determined with the information given

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3. Suppose you observe the following exchange rates: €1 = \$1.25; 1 = \$2.00. Calculate the euro-pound exchange rate. A. €1 = 1.60 B. €1 = 0.625 C. €2.50 = 1 D. €1 = 2.50 suppose that S(\$/ €) = 1.50 ie \$1.50- €1.00 and that S(\$/ €) – 2.00 ie € 1.00+\$2.00 what is the cross rate be? Suppose that S(\$/€ = 1.50 ie \$1.50- € 1.00 and that S(yeh/ €) -50 ie €1.00 - ¥ 50 \$1.50 x € 1.00- \$1.50 €1.00 ¥ 50 ¥ 50 S1.00 = ¥ 33.33 \$0.0300= ¥ 1
4. The AUD/\$ spot exchange rate is AUD1.60/\$ and the SF/\$ is SF1.25/\$. The AUD/SF cross exchange rate is: A. 0.7813 B. 2.0000 C. 1.2800 D. 0.3500 Rationale: AUD 1.60 x \$1 = AUD 1.28 \$ 1 SF 1.25 SF 1.25 5. Suppose you observe the following exchange rates: €1 = \$1.50; × 120 = \$1.00. Calculate the euro-pound exchange rate. A. × 133.33 = €1.00 B. €1.00 = × 180 C. × 80 = €1.00 D. €1 = 2.50 6. Find the no-arbitrage cross exchange rate. The dollar-euro exchange rate is quoted as \$1.60 = €1.00 and the dollar-pound exchange rate is quoted at \$2.00 = 1.00. A. €1.25/

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## This note was uploaded on 02/03/2011 for the course ECON 542 taught by Professor John during the Spring '11 term at Colorado College.

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International_Financ - International Finance Project 3 1 Suppose the spot ask exchange rate Sa(\$| is \$1.90 = 1.00 and the spot bid exchange rate

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