Multinational Companies are known to create wealth

Running head: INTERNATIONAL FINANCE
International Finance
Name of the Student:
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INTERNATIONAL FINANCE1
Table of Contents
Part A...............................................................................................................................................2
Question 1........................................................................................................................................2
Question 2........................................................................................................................................4
Question 3........................................................................................................................................9
Question 5......................................................................................................................................11
References......................................................................................................................................13

INTERNATIONAL FINANCE2
Part A
Question 1
a) The new exchange rate after an effect of 2% increase in the overall value of the dollar
given the current set of exchange rate will be determined with the help of the increase in
the spot rate that is around $1.10. The value can be determined as: Spot Rate
($1.10)*Percentage Increase in the Value (2%) = $1.220 (Arize, Malindretos and Igwe
2017).
The change in the value of expected spot rate can also be calculated with the help of
formula:
(New Exchange Rate – Opening/Beginning Exchange Rate)/Beginning Exchange
Rate.
Now New Exchange Rate will be (Expected Change in Value*Opening Exchange Spot
Rate)+Beginning Spot Rate.
The Expected Value of Spot Rate after an 2% Increase will be around:
((0.02*1.10)+1.10)
Expected Spot Rate: EUR/USD: 1.220
Change in EUR/USD
Particulars Amount ($)
Spot Rate $1.10
Increase in the Spot Rate 2%
Expected Spot Rate
$
1.1220

INTERNATIONAL FINANCE3
b) The cross currency rate for the GBP/EUR can be well calculated by taking the indirect
quote method where:
1EUR: $1.1043 USD
On the other hand, the value of 1 GBP: 1.2970 USD
The Indirect Quotation Method can be well applied for the Computation of Cross
Currency Rate:
 The Reported 1EUR: $1.1043 USD will be reversed to get
1 USD: (1/1.1043)
1 USD: 0.9056 EUR
 The Reported 1 GBP: 1.2970 USD will be reversed to get
1 USD: (1/1.2970)
1 USD: 0.7710 GBP
Thus, the value determined is 0.7710 GBP is equal to 0.9056 EUR
Therefore 1 GBP = (0.9056/0.7710)
GBP/EUR: 1.1746
c) Triangular Arbitrage is also known as cross currency arbitrage and is often done by
traders and investors to exploit the arbitrage opportunity that exists in the market which
usually comes from a pricing discrepancy that can be observed among three different
currencies in a forex market (Romelli, Terra and Vasconcelos 2018). The arbitrager looks
for the under-priced set of cross-currency which is trading undervalued and exploits the
market opportunity by equally taking an position in the same. The process of identifying