Exchange Rate Analysis


Added on  2019-09-21

3 Pages835 Words123 Views
Answer 1: It is to be noted that Bid rate will be consider as relevant while purchasing a foreigncurrency. So for buying 5000 Mixican pesos ,following amount of Dollar need to be spend = 5000 Mexican pepos/ 12.9 (Bid Rate per USD ) = 5000/12.9 = 387.60 USD Answer 2A)Why was Mr. Stein better off exchanging $200 than $50? Answer 1 : It is to be noted that selling multiple times the same currency will take more transaction cost and hence it is viable to sell of 200USA B)Why do you think the credit card exchange rate was better than any rate he got whilein France? Answer 2: It is to be noted that credit card helps to pay off only those amount which requireas expense It does not result in transaction cost for selling and purchasing the currency under which expenditure need to be done Answer 3A) Compute S(US$/ask C$) and S(US$/bid C$). S(US$/ask C$) = 1/1.235 = 0.8097 $(US/Bid C $) =1/1.2400 = 0.8064A)Compute the percentage bid-ask spread for S(US$/C$).Bid Ask Spread =( .8097-0.8064)/.8097 = .41%Answer 4Ans.Yes there exists an arbitrage opportunity. It can be done in following steps:1)Sell 121.25 yen to Bank A and buy 1 USD2)Sell this dollar for 121.30 yen at Bank BThe arbitrage takes place when the ask price of one bank is lower than bid price of another.
Exchange Rate Analysis_1

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