Reading 18: Currency Exchange Rates-LOS a, (Part 1)习题精选 center, methods, foreign, exchange, 2010

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Session 4: Economics: Economics for Valuation
Reading 18: Currency Exchange Rates

LOS a, (Part 1): Define direct and indirect methods of foreign exchange quotations.

 

 

 

The spot exchange rate is USD 0.50 per Alpha. A U.S. importer wants to buy stuffed toys for a total amount of 6 million Alphas. The USD equivalent cost is:

A) USD 12,000,000.

B) USD 3,000,000.

C) Alpha 3,000,000.

土豆妮

The spot exchange rate is USD 0.50 per Alpha. A U.S. importer wants to buy stuffed toys for a total amount of 6 million Alphas. The USD equivalent cost is:

A) USD 12,000,000.

B) USD 3,000,000.

C) Alpha 3,000,000.

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Start by computing $0.50 times 6,000,000 Alpha = USD 3,000,000. Dividing 6,000,000 Alpha by $0.50 gives an incorrect answer of USD 12,000,000 and Alpha-denominated choices don’t provide the USD equivalent.

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Which of the following statements about the foreign exchange market is least accurate?

A) Foreign exchange quotations can be expressed on a direct basis--the foreign currency price of the home currency--or an indirect basis--the home currency price of another currency.

B) In the spot market, currencies are traded for immediate delivery but in the forward market, contracts are made to buy and sell currencies for future delivery.

C) A foreign currency is at a forward discount if the forward rate expressed in domestic currency is below the spot rate, whereas a forward premium exists if the forward rate is above the spot rate.

土豆妮

Which of the following statements about the foreign exchange market is least accurate?

A) Foreign exchange quotations can be expressed on a direct basis--the foreign currency price of the home currency--or an indirect basis--the home currency price of another currency.

B) In the spot market, currencies are traded for immediate delivery but in the forward market, contracts are made to buy and sell currencies for future delivery.

C) A foreign currency is at a forward discount if the forward rate expressed in domestic currency is below the spot rate, whereas a forward premium exists if the forward rate is above the spot rate.

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Foreign exchange quotations can be expressed on a direct basis — the home currency price of another currency—or an indirect basis—the foreign currency price of the home currency.

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The direct quote method is:

A) FC/DC.

B) DC/FC.

C) 1/(DC/FC).

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The direct quote method is:

A) FC/DC.

B) DC/FC.

C) 1/(DC/FC).

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Direct quotes are the usual method of quoting currencies. Indirect quotes are used in the U.K., Canada, and U.S.

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If the indirect quote for U.S. dollars in Sydney is 0.7927, what is the equivalent indirect quote in New York City for Australian dollars?

A) 1.2615.

B) 0.3964.

C) 0.7927.

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If the indirect quote for U.S. dollars in Sydney is 0.7927, what is the equivalent indirect quote in New York City for Australian dollars?

A) 1.2615.

B) 0.3964.

C) 0.7927.

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Indirect quotes are foreign currency per domestic currency or FC/DC. An indirect quote in Sydney for USD of 0.7927 means 0.7927USD/AUD which equals an indirect quote in New York City of 1AUD/0.7927USD = 1.26AUD/USD.

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An indirect quote for pesos to a $U.S. investor is 8.00-8.50. If you have $100, how many pesos will you be able to buy?

A) 11.8.

B) 850.

C) 800.

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An indirect quote for pesos to a $U.S. investor is 8.00-8.50. If you have $100, how many pesos will you be able to buy?

A) 11.8.

B) 850.

C) 800.

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Use the following steps to calculate this result:

Step 1: Put the quote in direct terms. (Remember: The bid will become the ask and the ask will become the bid).

Bid: 1.00000 / 8.50000_peso/$ = 0.11765_$/peso

Ask: 1.00000 / 8.00000_peso/$ = 0.12500_$/peso

Step 2: Calculate how many pesos can be purchased for $100.00

Since we are buying pesos, we have to buy at the ask price of 0.12500_$/peso. 100.00000_$ / 0.12500_$/peso = 800_pesos.

Alternate method:

For the examination, remember that the bank must make its profit through the bid-ask spread (the foreign-exchange market is typically transaction-fee free), so you will always buy at the "high" price and sell at the "low price." Here, the "high" price is 8.00000_peso/$ (At 8.00000_peso/$ the peso is worth more than at 8.50000_peso/$).

100.00000_$ × 8.00000_peso/$ = 800.00000_peso