International Finance, Chapter 2, Exercise Solutions

Problems

1.        In Brussels: €/$ - €0.82;                solution: $/€=1/0.82=$1.2195

        In New York: $/€=$1.22;        solution: €/$=1/1.22=€0.8197

2.        Value of Mexican Peso:         Peso/$1 = 3.2

                                Peso/$2 = 5.5

Solution:  Percentage change = (3.2-5.5)/5.5*100% = -41.8%

                As the figure is negative, it means, Mexican Peso devalued against dollar by 41.8 %;

3.         One ounce of gold - $20.67

        One ounce of gold – FF310.00

Solution: FF/$ = 310.00/20.67 = FF15        or $/FF = 20.67/310.00 = $0.0667

4.         Price of one ounce of gold - $20.67 or £4.2474

        If the dollar price had been $38 per ounce, what would be $/£?

Solution: Old $/£ = 20.67/4.2474 = $4.867

           New $/£ = 38/4.2474 = $8.95

5.         Spot rate of Mexican pesos = Ps10.74/$

        Company buys Ps350,000

Solution: Company must pay – 350,000/10.74= $32,588

6.        HK$/$ = 7.80;        Yuan/$1 = 8.28;               Yuan/$2 = 8.11

Solution: HK$/Yuan1 = 7.80/8.28 = HK$ 0.942

           HK$/Yuan2 = 7.80/8.11 = HK$ 0.962        

8.         Price of Porsche Panamera - €120,000;        Margin earned – 20%.

        a) Spot rate - $1.44/€;                Dollar Price of Panamera - ?

Solution: Price of Panamera in US dollars = 120,000*1.44 = $172,800

        b) If price in US dollars - $158,000 and $/€ = 1.42;         Margin - ?

Solution: Euro equivalent of $158,000 = 158,000/1.42 = €111,268

           Margin = (111,268-120,000*0.8)*100/111,268 = 13.72%

9.         Price of Porsche Panamera - €120,000;        Margin earned – 20%;        Spot rate - $1.625/€; US $ price of Panamera - $158,000.        Profit margin of each car sold in US - ?

Solution: Euro value of $158,000 = 158,000/1.625 = €97,231

           Margin (of each car sold in US) = (97,231-120,000*0.8)*100/97,231 = 1.266%

10.         Price of platform - ¥1,650,000;        ¥/£1 = ¥197;        ¥/£2 = ¥190;        Change of price in £ - ?

Solution: Price1 in £ = 1,650,000/197 = £8375.63

           Price2 in £ = 1,650,000/190 = £8684.21

        Price increased by (8684.21-8375.63)/ 8375.63 = 3.68%

11.        Price in Indian rupees – Rps12,500;        Price in Brazilian reals – R$825;

        After appreciation of reals, rate – Rps17.5/R$;                New rupees price -?

Solution: Old Rps/R$ = 12,500/825 = Rps15.152

           Appreciation = (17.5-15.152)*100/15.152 = 15.5%

          New price in rupees = 12,500*1.155 = Rps14,437.5

12.         US dollar price - $170

        Solution: