Muzzammil Jamal

2168473

BUSN 9241 International Business Finance Mini-Assignment 2

Question 1.
A direct quote is a home currency price of a unit of a foreign currency whereas an indirect quote is a
foreign currency in a unit of the home currency.
(a) cad/gbp 2.31 (direct); gbp/cad 0.43 (indirect)
(b) usd/cad 0.84 (indirect); cad/usd 1.18 (direct)
(c) cad/eur 1.54 (Direct); eur/cad 0.65 (indirect)
Question 2.
a) The quote UD/GBP 2.3134- 2.3180 is a quote for GBP in terms of the AUD
b) The ask rate for AUD is 1/ 2.3134 = 0.4323
c) The bid rate for GBP is 2.3134
Question 3.
a) No these quotes arent identical as ABC bank implies EUR/JPY 0.0061 0.0065
b) As the quoted rates by ABC bank are greater than those offered by DEF bank, there is an arbitrage
opportunity.
c) To profit from this arbitrage opportunity, buy JPY from DEF bank at EUR/JPY 0.0063 and then sell
it to ABC bank at EUR/JPY 0.0061.
Question 4.
The three strategic motives why firms become multinationals are: market seekers, knowledge seekers and
raw materials seekers.
Multinationals that are seeking to increase their consumer base and want more consumers buying their
products are deemed to be market seekers such as car companies. Whereas knowledge seekers are those
looking for an educated workforce and are those companies that want to bolster their R&D department.
Raw material seekers are companies that are looking for commodities such as oil or steel such as BP or
Shell.
Question 5.
A free float exchange rate is determined by the market and is not controlled by the central bank of a
country nor the government. Although economically, capital is allowed to move freely however the
stability of the exchange rate is less. This instability may not be handled well by an emerging market
country as they have a small financial market. However a currency board is a law binding commitment
that aims to fix the foreign exchange rate with a specific country. Dolloarisation is when an emerging
market country relinquishes of their currency for a currency that is usually used by a major trade partner.
Independent monetary policy is gone and monetary policy isnt influenced by politics under this regime.