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# EXCHANGE RATES ASSIGNMENT

EXCHANGE RATES ASSIGNMENT.

These are 4 business finance questions that I need computed. Work needs to be shown. Question, 1, 2, 5 and 7.

1.The Wall Street Journal reported the following spot and forward rates for the Swiss franc (\$/SF).

Spot …………………………………………… 30-day forward ……………………………. 90-day forward ……………………………. 180-day forward …………………………..

\$0.8202 \$0.8244 \$0.8295 \$0.8343

a.Was the Swiss franc selling at a discount or premium in the forward market? b.What was the 30-day forward premium (or discount)? c.What was the 90-day forward premium (or discount)? d.Suppose you executed a 90-day forward contract to exchange 100,000 Swiss

francs into U.S. dollars. How many dollars would you get 90 days hence? e.Assume a Swiss bank entered into a 180-day forward contract with Bankers

Trust to buy \$100,000. How many francs will the Swiss bank deliver in six

months to get the U.S. dollars

2. Suppose a Polish zloty is selling for \$0.3414 and a British pound is selling for

1.4973. What is the exchange rate (cross rate) of the Polish zloty to the British

pound? That is, how many Polish zlotys are equal to a British pound?

5. An investor in the United States bought a one-year Brazilian security valued at 195,000 Brazilian reals. The U.S. dollar equivalent was 100,000. The Brazilian security earned 16 percent during the year, but the Brazilian real depreciated 5 cents against the U.S. dollar during the time period (\$0.51 to \$0.46). After transferring the funds back to the United States, what was the investor’s return on her \$100,000? Determine the total ending value of the Brazilian investment in Brazilian reals and then translate this Brazilian value to U.S. dollars. Then compute the return on the \$100,000.

7. .You are the vice president of finance for Exploratory Resources, headquartered in Houston, Texas. In January 2010, your firm’s Canadian subsidiary obtained a six-month loan of 150,000 Canadian dollars from a bank in Houston to finance the acquisition of a titanium mine in Quebec province. The loan will also be repaid in Canadian dollars. At the time of the loan, the spot exchange rate was U.S. \$.8995/Canadian dollar and the Canadian currency was selling at a discount in the forward market. The June 2010 contract (face value 5 C\$150,000 per con- tract) was quoted at U.S. \$0.8930/Canadian dollar.

a.Explain how the Houston bank could lose on this transaction assuming no hedging.

b.If the bank does hedge with the forward contract, what is the maximum amount it can los

EXCHANGE RATES ASSIGNMENT

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