# CH17 - CHAPTER 17 2 The exchange rate between US dollars...

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CHAPTER 17 2. The exchange rate between US dollars and British pounds is 0.6 pounds per dollar. The exchange rate between US dollars and Japanese yen is 100 yen to the dollar. Determine the exchange rate of yen per pound and pounds per yen. £0.6 = \$1 ¥100 = \$1 .6 £0 per 100 ¥ = .6 £0 \$1 \$1 100 ¥ × £1 = [100/.6] ¥ = 166.67 ¥ 100 ¥ per .6 £0 = 100 ¥ \$1 1 \$ .6 £0 × ¥1=£0.006 3. The US/Canadian exchange rate is \$0.90 Canadian equals US \$1. The US/UK exchange rate is \$2 US equals £1. How many Canadian dollars are there in £1? \$0.90C = \$1 US \$2US = £1 .5 0 £ per .90C 0 \$ = .5 £0 US \$1 x US \$1 .90C 0 \$ £1=\$1.80C 4. The exchange rate between US dollars and British pounds is 0.6 pounds per dollar. You can invest in the US for one year at the spot interest rate of 8 percent. Alternatively, you can exchange dollars for pounds and invest in Britain at 12 percent. After one year, you exchange the pounds for dollars at the prevailing exchange rate. (a) At what exchange rate would your total return on the British investment be 15 percent? (b) At what exchange rate would the returns on the US and British investments be equal? (c) What should the forward exchange rate be? a.

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## This note was uploaded on 06/07/2011 for the course FIN 4243 taught by Professor Dudley during the Spring '08 term at University of Florida.

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CH17 - CHAPTER 17 2 The exchange rate between US dollars...

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