Question

1. Exchange Rate: Suppose the direct foreign exchange rates in U.S. dollars are: 1 British pound = $1.60 1 Canadian dollar = $0.74

Required:

a. What are the indirect exchange rates for the British pound and the Canadian dollar?

b. How many pound must a British company pay to buy goods costing $8,000 from the U.S. company?

c. How many U.S. dollars must be paid for a purchase costing 4,000 Canadian dollars?

2. Changes in Exchange Rates: Upon arrival at the international airport in the country of Canterberry, Charles Alt exchanged $200 of U.S. currency into 1,000 florins, the local currency unit. Upon departure from Canterberry’s international airport on completion of his business, he exchanged his remaining 100 florins into $15 of U.S. currency.

Required:

a. Determine the currency exchange rates for each of the cells in the following matrix for Charles Alt’s business trip to Canterberry.

b. Discuss and show whether the U.S. dollar strengthened or weakened relative to the florin during Charles’ stay in Canterberry.

c. Did Charles experience a foreign currency transaction gain or a loss on the100 florins he held during his visit to Canterberry and converted to U.S. dollars at the departure date?

Explain your answer.

ARRIVAL DATE DEPARTURE DATE

Direct Exchange Rate = ?

Direct Exchange Rate = ?

Indirect Exchange Rate = ?

Indirect Exchange Rate = ?

Answer 1

Q1)

B C D E 1 Q1 2 Exchange rate 3 USD/ British Pound 4 USD/ Canadian Dollar $1.60 Given in the question $0.74 Given in the question 6 a) Inderect Exchange rate 7 British Pound/Canadian Dollar 0.4625 =B4/B3 9 b) Pound Payment 10 11 Amount 12 Payment in Pounds $8,000 Given in the question 5,000 =B11/B3 13 14 c) US Dollar Payment 16 Amount in Canadian Dollar 17 Payment in US Dollar 4,000 Given in the question $2,960 =B16*B4

a. The indirect exhange rate is British Pound 0.4625 per Canadian Dollar

b. The British company must pay 5,000 Pounds

c. US Dollars 2,960 must be paid for a purchase costing 4,000 Canadian dollars

Q2

D B C 19 Q2 20 Exhange rates are given in Florins per US Dollar 22 Exchange rate at arrival 5 Florins per USD =1000/200 25 Exchange rate at Departure 6.6667 Florins per USD =100/15

a. The exchange rate at arrival is 5 Florins per USD, The exchange rate ar Departure is 6.6667 Florins per USD

b. The US Dollars strengthened relative to Florins during Charles’ stay in Canterberry.

c. Charles experienced a foreign currency transaction loss on the100 florins he held during his visit to Canterberry and converted to U.S. dollars at the departure date. If the exchange rate was same as the exchange rate on arrival, he would have had $20 instead of $15