Problem:
Consider the following exchange rate
U.S Dollars required to buy one unit of Foreign Currency
Japanese yen 0.009
Australian dollars 0.650
1. Are these currency prices direct quotation or indirect quotations?
2. Calculate the indirect quotation for the Japanese yen and Australian dollars.
3. Calculate the two cross rate between the yen and Australian dollar.
4. Assume Citrus Product can produce a liter of orange juice and ship it the Japan for $1.75. If the firm wants a 50% mark up on the product, what should the orange juice sell for in Japan?
5.Now assume Citrus Products begin producing the same liter of Orange juice in Japan. The product costs 250 yen to produce and shipped to Australia, where it can be sold for 6 Australian dollars. What is the U.S dollars profit on the sale?
6. What is the exchange rate risk?