Suppose the following exchange rate bid and offer (ask) quotes exist for the following currencies
Currency Bid Offer
$/£ 1.4258 1.4270
¥/$ 123.80 123.9
BEF/USD 43.344 43.362
30 day forward 43.317 43.344
60 day forward 43.292 43.309
90 day forward 43.270 43.292
$/€ 0.9302 0.9307
30 day forward 0.9306 0.9313
60 day forward 0.9312 0.9318
90 day forward 0.9319 0.9323
C$/$ 1.5775 1.5792
MXP/$ 9.2058 9.2070
(BEF = Belgium Franc, MXP = Mexican Peso)
a) You need to contribute 10 million British pounds as your initial capital contribution immediately to a U.K. joint venture. How many U.S. dollars does it cost?
b) You have 10 million Mexican pesos in a bank account in Mexico City available immediately for repatriation to the U.S. How many U.S. dollars will you receive?
c) You’ve just made a sale of widgets to a Belgian customer for 10 million Belgian francs. You’ll send the widgets in 30 days with payment due in 60 days.
i) How many U.S. dollars would you receive at today’s rate for BEF 10 million?
ii) How many U.S. dollars would you receive if the Belgian franc depreciated by 10%?
iii) How many U.S. dollars would you receive if you entered into a forward contract?
iv) How many U.S. dollars would you receive if the Belgian franc depreciated by 10% (and you’ve entered into the forward contract)?
d) You’ve just entered into a contract to sell 1 million mufflers to a large German automotive company. You normally price mufflers at $10/each. You are asked to bid in Euros. You will produce the mufflers in the U.S. and ship them to Germany in 60 days with 30-day payment terms. What is your price in Euros?
e) You are in Canada and need to €5 million, how many C$ will it cost you (suppose there is no direct market for C$-€ so you must “go through” the $.