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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

X

X

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

X

USD $ 1 VND 16,041

1

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

X

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

X

=

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

X

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

X

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