1.
The spot rate on the London market is £0.5515/$, while the 90-day forward rate is £0.5596/$. What is the annualized forward premium or
discount on the British pound?
2.
The foreign exchange department of Bank of
America has a bid quote on Canadian dollars (C$) of C$1.1448/$.
If the bank typically tries to make a bid-ask spread of 0.5 percent on these foreign exchange
transactions, what will the ask rate have to be?
3.
Blossom Pharma
just received revenues of $3,165,800 in
Australian dollars (A$). Management has the following exchange rates: A$2.69500/£ and $1.5906/£. What is the U.S. dollar value
of the company’s revenues?
4.
Sunland Industries
has purchased equipment from a Brazilian firm for a total cost of 295,000 Brazilian reals. The firm has to pay in
30 days. Citibank has given the firm a 30-day forward quote of $0.3102/real.
Assume that on the day the payment is due, the spot rate is $0.3407/real. How much would Sunland save by hedging with a forward
contract?
5.
A Swiss sporting goods company borrows in yen
in the Eurocredit market at a rate of 4.57 percent
from Bank of America using a three-month rollover loan. Bank of America assigns
a default risk premium of 1.75 percent
on the loan, and the country risk is an additional 0.80 percent. The bank can borrow funds in the
Euromarket at the three-month LIBOR rate of 0.38 percent.
What is Bank of America’s gross profit margin on this loan?
6.
If a Volkswagen Passat costs $22,050 in Baltimore and €21,000 in
Frankfurt, what is the implied exchange rate between the U.S. dollar and the
euro?
7.
Calculate the indicated exchange rates given
the following information. (Round
answers to 5 decimal places, e.g. 15.25750.)
Given
Compute
a.
¥100.2500/$
$enter the exchange rate rounded to 5 decimal places /¥
b.
$1.0550/£
£enter the exchange rate rounded to 5 decimal places /$
c.
$0.9050/C$
C$enter the exchange rate rounded to 5 decimal places /$
8.
Management of Sheridan, Inc., an
electronic games manufacturer, is planning to purchase flash memory from one of
two sources. Kyoto, Inc., quotes a price of ¥6,700 per gigabyte. The
current exchange rate is ¥101.50/$. Another Japanese manufacturer offers to
supply the same flash memory at a price of €58.00 per gigabyte. The spot
rate available is ¥208.08/€. (Round
answers to 2 decimal places, e.g. 15.25.)
Vendor 1
Vendor 2
Cost from
$enter your answer in dollars rounded to 2 decimal places
per gigabyte
$enter your answer in dollars rounded to 2 decimal places
per gigabyte
9.
American Sunland management is
planning to make a $2.2 million loan to a French firm. Currently, LIBOR is
at 1.7 percent. American management considers a default risk premium
of 1.45 percent, a foreign exchange rate risk premium
of 0.25 percent, and a country risk premium of 0.13 percent
to be appropriate for this loan.
What is the loan rate charged by
American Sunland?
Loan rate charged
enter the loan rate charged in percentages %
10.
Sunland Corp. has just made a sale to a
British customer. The sale was for a total value of £145,500 and is to be
paid 60 days from now. Sunland management is concerned that the
British pound will depreciate against the U.S. dollar and plans to hedge this
risk. The company’s bank informs management that the spot rate is $1.2750/£ and
the 60-day forward rate is $1.2650/£.
If Sunland sells its pounds receivable
at the forward rate, what is the dollar value of its receivables? (Round answers to 2 decimal places, e.g. 15.25.)
Value of receivables
$enter the dollar value of the receivables rounded to 2 decimal places
If it did not enter into a forward contract and
the spot rate 60 days later is $1.2375/£, how much would the company lose by
not hedging? (Round answers to 2 decimal
places, e.g. 15.25.)
Loss incurred by not hedging
$enter the loss incurred by not hedging in dollars rounded to 2 decimal places

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