Question

23) Country Switzerland (Franc) CHF Euro € USD equivalent BID ASK 0.7648 0.7652 1.4000 1.4200 What is the ASK cross-exchange rate for Swiss Francs priced in euro? Hint: Find the price that a currency dealer will take in euro to sell Swiss francs. A) €0.5386/CHF B) €0.5466/CHF €0.5389/CHF D) €0.5463/CHF 24) 24) Suppose a bank customer with €1,000,000 wishes to trade out of euro and into Japanese yen. The dollar-curo exchange rate is quoted as $1.70 - €1.00 and the dollar-yen exchange rate is quoted at $1.00 = 130. How many yen will the customer get? A) 45,208.33 B)75,000,000 45,208,333 D) W221,000,000 25) 25) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.20 = €1.00 and the dollar-pound exchange rate is quoted at $1.80 £1.00. If a bank quotes you a cross rate of £1.00 - €1.50, how much money can an astute trader make? A) $500,000 B) $250,000 No arbitrage is possible D) $1,160,000 26) 26) Suppose you observe the following exchange rates: €1 - 5.85; £1 = $1.60; and €2.00 - £1.00. Starting with $1,000,000, how can you make money? A) Exchange Sim for £625,000 at £! - $1.60. Buy €1.250,000 at €2 - £1.00; trade for $1,062,500 at El - 5.85. B) Start with euros; exchange for pounds; exchange for dollars, exchange for euros. Start with dollars, exchange for euros at El = 5.85; exchange for pounds at €2.00 - £1.00; exchange for dollars at £1 = $1.60. 27) 27) You are a U.S.-based treasurer with $1,000,000 to invest. The dollar-euro exchange rate is quoted as $1.50 = €1.00 and the dollar-pound exchange rate is quoted at $2.00 - £1.00. If a bank quotes you a cross rate of £1.00 = €1.25 how can you make money? A) Buy curo at $1.50/e, buy £ at €1.25/£, sell £ at $2/£. B) No arbitrage is possible. Buy £ $2/£, buy € at €1.25/£, sell € at $1.50/€.

Answer 1

23) b .5466

Calculation explained below

	Bid	Ask
CHF USD	0.7648	0.7652
EURO USD	1.4000	1.4200
	BID	Ask
CHF Euro	0.5386	0.5466
	E3/F4	F3/E4

24) d Yen 221,000,000

Converting Euro to $

1.7$ = 1 Euro, so Euro 1,000,000 would be $ 1,700,000

Now if 1$ = 130 Yen so $ 1,700,000 would be Yen 221,000,000

25) C No Arbitrage Possible

1 Euro equals to 1.2$ and

1 Pound equals to 1.8$ so

1 Pound equals to Euro = 1.8/1.2 = 1.5 and bank is also quoting the same so No Arbitrage Possible.

26) Yes, by following A option we can make $ 62, 500 as you are getting $ 1,062,500 for $ 1,000,000

27) Going with a option we can make $ 6.67 with every 100 $

Buy Euro with $ 100 = (100/1.5) Euro 66.67

Convert Euro to Pound = Euro 66.67= 53.60 Pound (66.67/1.25) = Pound 53.33

Convert Pound to $ = 53.33*2 = 106.67