UNIVERSITY OF MASSACHUSETTS BOSTON

Accounting & Finance Department

AF 455 Prof. Konan

International Financial Management
Homework # 3

Instructions: Answer all questions below. Make sure to show your work. Your answers
must be typed. (TOTAL = 40 POINTS)

1. Utah Bank’s bid price for Canadian dollars is $.7838 and its ask price is $.8010. What is
the bid/ask percentage spread?

2. Compute the bid/ask percentage spread for Mexican peso retail transactions in which the
ask rate is $.12 and the bid rate is $.11.

3. The Wolfpack Corp. is a U.S. importer that invoices its imports from the United
Kingdom in pounds. If it expects that the pound will appreciate against the dollar in the
future, should it hedge its imports with a forward contract? Explain.

4. You just came back from Canada, where the Canadian dollar was worth $.72. You still
have C$220 from your trip and could exchange them for dollars at the airport, but the
airport foreign exchange desk will only buy them for $.62. Next week, you will be going
to Mexico and will need pesos. The airport foreign exchange desk will sell you pesos for
$.12 per peso. You met a tourist at the airport who is from Mexico and is on his way to
Canada. He is willing to buy your C$220 for 1,300 pesos. Should you accept the offer or
cash the Canadian dollars in at the airport? Explain.