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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 bidask 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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View Full Document 3. Suppose you observe the following exchange rates: €1 = $1.25;
≤
1 = $2.00. Calculate the
europound exchange rate.
A. €1 =
≤
1.60
B. €1 =
≤
0.625
C. €2.50 =
≤
1
D. €1 =
≤
2.50
suppose that S($/ €) = 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
europound exchange rate.
A.
×
133.33 = €1.00
B. €1.00 =
×
180
C.
×
80 = €1.00
D. €1 =
≤
2.50
6. Find the noarbitrage cross exchange rate. The dollareuro exchange rate is quoted as $1.60 =
€1.00 and the dollarpound 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.
 Spring '11
 John

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