EXERCISE 1: CALCULATING AND USING EXCHANGE RATES

Currency US $ Equivalent
China (Yuan Renminbi) 0.1208
Japan (Yen) 0.0083
Mexico (Peso) 0.0940
Singapore (Dollar) 0.5617
Taiwan (Dollar) 0.02878
Turkey (Lira) 0.00000062
U.K. (Pound) 1.5734
Venezuela (Bolivar) 0.0006
Euro 1.0773
EXERCISE 2: CALCULATING CROSS EXCHANGE RATES
Use these exchanges to answer the questions below:
COUNTRY
China - Yuan Renminbi (CNY)
Japan - Yen (JPY)
Argentina - Peso (ARS)
Vietnam - Dong (VND)
A Japanese manufacturing firm, Japanohondapokemon, placed a purchase order with Beijing conglomerate,
Maydinchina, to procure 10,000 tons of raw materials at a cost of 9,030,200 yuan renminbi. How many yen
does the Japanese firm have to exchange in order to pay the bill in yuan renminbi?
A trader at a well-known investment banking firm, Silverman Pouches, has an Argentinian client who is interested
in investing in emerging markets. The trader suggests the purchase of Vietnamese government-issued bonds,
currently selling at 1,604,100 Vietnamese dong (VND) per bond. How many Argentine Pesos (ARS) will it cost if
the client wants to purchase 250 bonds?
CNY 9,030,200
1
USD $ 1
CNY 8.2871
X X
VND 1,604,100 x 250
1
USD $ 1
VND 16,041
X
EXERCISE 3: CALCULATING CROSS EXCHANGE RATES
US DOLLAR
EGYPT 5.97540
INDONESIA 9,356.60
TAIWAN 37.60
VIETNAM 16,041.00
UNITED STATES -
EXERCISE 4: CALCULATING BID/ASK SPREADS
BID
EUROS $ 1.194
YEN $ 0.009245
What are the bank's bid/ask spreads? How much would you lose if you converted $500 into euros and $500
into yen, and then back into dollars?
a.) BID/ASK SPREADS EURO
Ask Price 1.245
Less: Bid Price 1.194
Subtotal 0.051
Divided by Ask Price 1.245
Bid/Ask Spread 0.041
b.) HOW MUCH LOSS? EURO
USD $ Amount 500.00
Multiplied by Rate 0.80
Equivalent Amount 401.61
Multiplied by Rate 1.19
Equivalent USD $ 479.52
USD $ Amount 500.00
Loss on Conversion (20.48)
EXERCISE 5: CURRENCY APPRECIATIONS AND DEPRECIATIONS
DATES EXCHANGE RATE
1 VND 16,041
4/24/2003 0.91130 EUR/USD
4/28/2003 0.90630 EUR/USD
6/17/1997 23.2 BHT/USD
1/13/1998 55.8 BHT/USD
4/25/2002 1.6430 CHF/USD
4/26/2002 0.6140 USD/CHF
6/26/2002 0.0008324 USD/KRW
2/18/2003 0.0008286 USD/KRW
1/30/1999 1.0038 ARS/USD
2/5/2001 1.00050 USD/ARS
1/30/2000 2.3442 CAD/GBP
9/20/2000 2.0927 CAD/GBP
12/12/2002 0.01629 INR/IQD
2/2/2003 68.0289 IQD/INR
12/27/2002 1.776 AUD/USD
12/28/2002 1.7831 AUD/USD
AUD Australian Dollar EUR Euro
ARS Argentine Peso GBP British Pound
BHT Thai Baht INR Indian Rupee
CAD Canadian Dollar IQR Iraqi Dinar
CHF Swiss Franc KRW Korean Won
EXERCISE 6: MEASURING CURRENCY FLUCTUATIONS
If the Mexican Peso depreciates 50% against the U.S. Dollar, how much would the peso have to appreciate
to get back to its original level?
Let exchange rate be: 1USD = 10MXN
So, if MXN decreased by 50%, then rate: 1USD = 20MXN
To go back to its original level, MXN must appreciate by 50%
EXERCISE 7: MEASURING CURRENCY FLUCTUATIONS
Amount Change
Original Rate
=
X 100
The Brazilian Real (BRL) exchange rate moved from 3.2020 BRL/USD to 3.1606 BRL/USD over two days.
Calculate the Real's Percentage Change and note whether it appreciated or depreciated.
Original Rate
Less: Changed Rate
Amount Changed
Divided by Original Rate
Multiplied by 100%
Depreciation in USD
Original Rate
Less: Changed Rate
Amount Changed
Divided by Original Rate
Multiplied by 100%
Appreciation in BRL
EXERCISE 8: CALCULATING ACTUAL AND IMPLIED PPP EXCHANGE RATES
The Economist Big Mac Index
IN LOCAL CURRENCY
UNITED STATES 2.71
AUSTRALIA 3.00
BRAZIL 4.55
CHINA 9.90
DENMARK 27.75
EGYPT 8.00
HONG KONG 11.50
MALAYSIA 5.04
RUSSIA 41.00
SOUTH KOREA 3300.00
SWITZERLAND 6.30
EXERCISE 8: CALCULATING THE COST OF A FORWARD CONTRACT
A U.S. Multinational, Hoola Hoopa, Inc., hired a Canadian IT consulting firm to upgrade its internal network.
BIG MAC PRICES
In 6 months when the contract is over, Hoola Hoopa will need 1.5 million Canadian dollars to pay the
consultants. The company needs to decide whether or not it should enter into a forward contract to hedge its
exchange rate risk. Fill in the answers below using the US $ Equivalent rates listed in the table below.
COUNTRY MON
Canada (Dollar) 0.6879
1-month forward 0.6868
3-months forward 0.6844
6-months forward 0.6803
Switzerland (Franc) 0.7197
1-month forward 0.7203
3-months forward 0.7215
6-months forward 0.7232
U.K. (Pound) 1.5734
1-month forward 1.5703
3-months forward 1.5644
6-months forward 1.5555
a.) Canadian Dollar Spot Rate
b.) Canadian Dollar 6-Months Forward Rate
c. What it would cost Hoola Hoopa if the company were to purchase the Canadian Dollars spot on 04/15/2003?
Amount of CAD
Multiplied by Spot Rate
Cost to Hoola Hoopa
d.) What it would cost Hoola Hoopa if it hedged with a forward contract on 04/15/2003 to purchase 1.5 million
Canadian Dollars 6 months later on 10/15/2003?
Amount of CAD
Multiplied by Forward Rate
Cost to Hoola Hoopa
U.S. $ EQUIVALENT
Compare the cost of the forward contract, or the hedged position, with the cost of buying the Canadian Dollars
on the spot market on October 15, 2003. Fill in the table below to show the cost of buying C$1.5 million at
different spot rates, and then calculate Hoola Hoopa's potential gains or losses from hedging with a futures
contract
0.6521 978,150.00
0.6700 1,005,000.00
0.6803 1,020,450.00
0.6850 1,027,500.00
0.6900 1,035,000.00
Spot Rate on 10/15/2003 Unhedged Position
EXERCISE 1: CALCULATING AND USING EXCHANGE RATES
Currency per US $ Equivalent of 100 US $
8.2781 827.8146
120.38 12,038.00
10.64 1,064.28
1.78 178.03
34.75 3,474.64
1,612,903.00 161,290,300.00
0.64 63.56
1,597.44 159,744.00
0.93 92.82
EXERCISE 2: CALCULATING CROSS EXCHANGE RATES
CURRENCY PER USD $
8.2871
119.0400
2.9750
16,041.0000
A Japanese manufacturing firm, Japanohondapokemon, placed a purchase order with Beijing conglomerate,
Maydinchina, to procure 10,000 tons of raw materials at a cost of 9,030,200 yuan renminbi. How many yen
does the Japanese firm have to exchange in order to pay the bill in yuan renminbi?
A trader at a well-known investment banking firm, Silverman Pouches, has an Argentinian client who is interested
in investing in emerging markets. The trader suggests the purchase of Vietnamese government-issued bonds,
currently selling at 1,604,100 Vietnamese dong (VND) per bond. How many Argentine Pesos (ARS) will it cost if
JPY 119.04
USD $ 1
X = JPY 129,714,255.70

ARS 2.975
USD $ 1
X = ARS 74,375.00
EXERCISE 3: CALCULATING CROSS EXCHANGE RATES
VIETNAM VNDONG TAIWAN TDOLLAR
0.0003725 0.1589
0.5833 248.845
0.002344 -
- 426.6212
0.00006234 0.02660
ASK
$1.245
$0.00967
What are the bank's bid/ask spreads? How much would you lose if you converted $500 into euros and $500
YEN
0.009670
0.009245
0.000425
0.009670
0.043950
YEN
500.00
103.41
51,706.31
0.01
478.02
500.00
(21.98)
EXERCISE 5: CURRENCY APPRECIATIONS AND DEPRECIATIONS
CURRENCY APPRECIATED
USD $ 1
USD U.S. Dollar
EXERCISE 6: MEASURING CURRENCY FLUCTUATIONS
If the Mexican Peso depreciates 50% against the U.S. Dollar, how much would the peso have to appreciate
So, if MXN decreased by 50%, then rate: 1USD = 20MXN
To go back to its original level, MXN must appreciate by 50%
EXERCISE 7: MEASURING CURRENCY FLUCTUATIONS
YES
YES
YES
USD
INR
CAD
YES
YES
BHT
EUR
USD
KRW
CHF
0.5
0.05
X = 10 100
The Brazilian Real (BRL) exchange rate moved from 3.2020 BRL/USD to 3.1606 BRL/USD over two days.
Calculate the Real's Percentage Change and note whether it appreciated or depreciated.
3.202
3.1606
0.0414
3.202 0.012929419
100%
1.29%
0.3123
0.3164
-0.0041
0.3123 0.0131
100%
1.31%
EXERCISE 8: CALCULATING ACTUAL AND IMPLIED PPP EXCHANGE RATES
IMPLIED PPP OF THE
IN DOLLARS DOLLAR
2.71 -
1.86 1.11
1.48 1.68
1.20 3.65
4.10 10.24
1.35 2.95
1.47 4.24
1.33 1.86
1.32 15.10
2.71 1217.71
4.59 2.32
EXERCISE 8: CALCULATING THE COST OF A FORWARD CONTRACT
A U.S. Multinational, Hoola Hoopa, Inc., hired a Canadian IT consulting firm to upgrade its internal network.
BIG MAC PRICES
In 6 months when the contract is over, Hoola Hoopa will need 1.5 million Canadian dollars to pay the
consultants. The company needs to decide whether or not it should enter into a forward contract to hedge its
exchange rate risk. Fill in the answers below using the US $ Equivalent rates listed in the table below.
FRI MON
0.6879 1.4537
0.6869 1.4560
0.6845 1.4611
0.6804 1.4699
0.7179 1.3895
0.7183 1.3883
0.7192 1.3860
0.7213 1.3827
1.5715 0.6356
1.5783 0.6368
1.5624 0.6392
1.5536 0.6429
0.6879
0.6803
c. What it would cost Hoola Hoopa if the company were to purchase the Canadian Dollars spot on 04/15/2003?
1,500,000.00
0.6879
1,031,850.00
d.) What it would cost Hoola Hoopa if it hedged with a forward contract on 04/15/2003 to purchase 1.5 million
1,500,000.00
0.6803
1,020,450.00
CURRENCY PER U.S. $ U.S. $ EQUIVALENT
Compare the cost of the forward contract, or the hedged position, with the cost of buying the Canadian Dollars
on the spot market on October 15, 2003. Fill in the table below to show the cost of buying C$1.5 million at
different spot rates, and then calculate Hoola Hoopa's potential gains or losses from hedging with a futures
Potential Gains/Losses in
U.S.$ from Hedge
1,020,450.00 (42,300.00)
1,020,450.00 (15,450.00)
1,020,450.00 -
1,020,450.00 7,050.00
1,020,450.00 14,550.00
Hedged Position
INDONESIA RUPIAH EGYPT EPOUND
0.0006386 -
- 1,565.8530
0.004019 6.2925
1.7144 2,684.5065
0.0001069 0.1674
DEPRECIATIED
YES
YES
YES
Actual Dollar Exchange Under(-)/Over(+) valuation
Rates. April 22, 2003 against the dollar %
- -
1.61 -31.06
3.07 -45.00
8.28 -56.00
6.78 51.00
5.93 -50.00
7.80 -46.00
3.80 -51.00
31.10 -51.45
1220.00 -
1.37 69.03
FRI
1.4537
1.4558
1.4609
1.4697
1.3930
1.3922
1.3904
1.3864
0.6363
0.6336
0.6400
0.6437
CURRENCY PER U.S. $