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 ord

Maydinchina, to procure 10,000 tons of raw materials at a cost of 9,030,200 yua
does the Japanese firm have to exchange in order to pay the bill in yuan renmin
CNY 9,030,200
1

USD $ 1
CNY 8.2871

A trader at a well-known investment banking firm, Silverman Pouches, has an A

in investing in emerging markets. The trader suggests the purchase of Vietname
currently selling at 1,604,100 Vietnamese dong (VND) per bond. How many Arg
the client wants to purchase 250 bonds?
VND 1,604,100 x 250
1

USD $ 1
VND 16,041

VND 16,041

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
$ 1.194
EUROS
$ 0.009245
YEN

What are the bank's bid/ask spreads? How much would you lose if you converte
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?
USD $ Amount
Multiplied by Rate
Equivalent Amount
Multiplied by Rate
Equivalent USD $
USD $ Amount
Loss on Conversion

EURO
500.00
0.80
401.61
1.19
479.52
500.00
(20.48)

EXERCISE 5: CURRENCY APPRECIATIONS AND DEPRECIATIONS

DATES
EXCHANGE RATE

4/24/2003
4/28/2003
6/17/1997
1/13/1998
4/25/2002
4/26/2002
6/26/2002
2/18/2003
1/30/1999
2/5/2001
1/30/2000
9/20/2000
12/12/2002
2/2/2003
12/27/2002
12/28/2002
AUD Australian Dollar
ARS Argentine Peso
BHT Thai Baht
CAD Canadian Dollar
CHF Swiss Franc

0.91130 EUR/USD
0.90630 EUR/USD
23.2 BHT/USD
55.8 BHT/USD
1.6430 CHF/USD
0.6140 USD/CHF
0.0008324 USD/KRW
0.0008286 USD/KRW
1.0038 ARS/USD
1.00050 USD/ARS
2.3442 CAD/GBP
2.0927 CAD/GBP
0.01629 INR/IQD
68.0289 IQD/INR
1.776 AUD/USD
1.7831 AUD/USD
EUR Euro
GBP British Pound
INR Indian Rupee
IQR Iraqi Dinar
KRW Korean Won

EXERCISE 6: MEASURING CURRENCY FLUCTUATIONS

If the Mexican Peso depreciates 50% against the U.S. Dollar, how much would
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%
Amount Change
Original Rate

100

EXERCISE 7: MEASURING CURRENCY FLUCTUATIONS

The Brazilian Real (BRL) exchange rate moved from 3.2020 BRL/USD to 3.160
Calculate the Real's Percentage Change and note whether it appreciated or dep
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 RAT

The Economist Big Mac Index
BIG MAC PRICES
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 u

In 6 months when the contract is over, Hoola Hoopa will need 1.5 million Canad
consultants. The company needs to decide whether or not it should enter into a
exchange rate risk. Fill in the answers below using the US $ Equivalent rates lis
U.S. $ EQUIVALENT
COUNTRY
Canada (Dollar)
1-month forward
3-months forward
6-months forward
Switzerland (Franc)
1-month forward
3-months forward
6-months forward
U.K. (Pound)
1-month forward
3-months forward
6-months forward

MON
0.6879
0.6868
0.6844
0.6803
0.7197
0.7203
0.7215
0.7232
1.5734
1.5703
1.5644
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 Canadi
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
Canadian Dollars 6 months later on 10/15/2003?
Amount of CAD
Multiplied by Forward Rate

Cost to Hoola Hoopa

Compare the cost of the forward contract, or the hedged position, with the cost o
on the spot market on October 15, 2003. Fill in the table below to show the cost
different spot rates, and then calculate Hoola Hoopa's potential gains or losses
contract
Spot Rate on 10/15/2003
0.6521
0.6700
0.6803
0.6850
0.6900

Unhedged Position
978,150.00
1,005,000.00
1,020,450.00
1,027,500.00
1,035,000.00

HANGE RATES
Currency per US $
8.2781
120.38
10.64
1.78
34.75
1,612,903.00
0.64
1,597.44
0.93

Equivalent of 100 US $
827.8146
12,038.00
1,064.28
178.03
3,474.64
161,290,300.00
63.56
159,744.00
92.82

NGE RATES
CURRENCY PER USD $
8.2871
119.0400
2.9750
16,041.0000

kemon, placed a purchase order with Beijing conglomerate,

rials at a cost of 9,030,200 yuan renminbi. How many yen
er to pay the bill in yuan renminbi?
JPY 119.04
USD $ 1

JPY 129,714,255.70

Silverman Pouches, has an Argentinian client who is interested

gests the purchase of Vietnamese government-issued bonds,
VND) per bond. How many Argentine Pesos (ARS) will it cost if

ARS 2.975
USD $ 1

ARS 74,375.00

USD $ 1

NGE RATES
VIETNAM VNDONG
0.0003725
0.5833
0.002344
0.00006234

TAIWAN TDOLLAR
0.1589
248.845
426.6212
0.02660

ASK
$1.245
$0.00967
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)

ND DEPRECIATIONS
CURRENCY

APPRECIATED

YES

EUR
BHT

YES

CHF
KRW
USD

YES

CAD

YES

INR

YES

USD
USD U.S. Dollar

TUATIONS
U.S. Dollar, how much would the peso have to appreciate

= 20MXN
iate by 50%
0.5
0.05

TUATIONS

100

10

om 3.2020 BRL/USD to 3.1606 BRL/USD over two days.

e 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%

PLIED PPP EXCHANGE RATES

IG MAC PRICES
IN DOLLARS
2.71
1.86
1.48
1.20
4.10
1.35
1.47
1.33
1.32
2.71
4.59

IMPLIED PPP OF THE

DOLLAR
1.11
1.68
3.65
10.24
2.95
4.24
1.86
15.10
1217.71
2.32

FORWARD CONTRACT
Canadian IT consulting firm to upgrade its internal network.

opa will need 1.5 million Canadian dollars to pay the

her or not it should enter into a forward contract to hedge its
g the US $ Equivalent rates listed in the table below.

S. $ EQUIVALENT

CURRENCY PER U.S. $

MON
1.4537
1.4560
1.4611
1.4699
1.3895
1.3883
1.3860
1.3827
0.6356
0.6368
0.6392
0.6429

FRI
0.6879
0.6869
0.6845
0.6804
0.7179
0.7183
0.7192
0.7213
1.5715
1.5783
1.5624
1.5536
0.6879
0.6803

y were to purchase the Canadian Dollars spot on 04/15/2003?

1,500,000.00
0.6879
1,031,850.00

ith a forward contract on 04/15/2003 to purchase 1.5 million

1,500,000.00
0.6803
1,020,450.00

hedged position, with the cost of buying the Canadian Dollars

e table below to show the cost of buying C$1.5 million at
opa's potential gains or losses from hedging with a futures

Hedged Position
1,020,450.00
1,020,450.00
1,020,450.00
1,020,450.00
1,020,450.00

Potential Gains/Losses in
U.S.$ from Hedge
(42,300.00)
(15,450.00)
7,050.00
14,550.00

INDONESIA RUPIAH
0.0006386
0.004019
1.7144
0.0001069

DEPRECIATIED

EGYPT EPOUND
1,565.8530
6.2925
2,684.5065
0.1674

YES

YES
YES

Actual Dollar Exchange

Rates. April 22, 2003
1.61
3.07
8.28
6.78
5.93
7.80
3.80
31.10
1220.00
1.37

Under(-)/Over(+) valuation
against the dollar %
-31.06
-45.00
-56.00
51.00
-50.00
-46.00
-51.00
-51.45
69.03

RENCY PER U.S. $

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