Foreign Exchange Markets

Financial and Economic Management

International MBA
2022

ACTIVITIES
1.- According to the following exchange rates (EURUSD 1.2950 and USDCHF
1.1995), what would be the EURCHF cross rate?

a) 1.0796.
b) 0.9263.
c) 1.5534.
d) 1.5610.

2.- According to the following exchange rates (EURGBP 0.6712 and EURJPY
157.78), what would be the GBPJPY cross rate?

a) GBPJPY 4.25.
b) GBPJPY 235.07.
c) GBPJPY 0.9263.
d) GBPJPY 105.90.

3.- What is the impact of Chinese Yuan appreciation may have on international
trade?

a) The appreciation of the Chinese Yuan would cause a decline in the

competitiveness of the world respecting China.
b) The appreciation of the Chinese Yuan would cause an increase in the
competitiveness of China to the rest of the world.
c) The appreciation of the Chinese Yuan may promote increased exports from the rest
of the world to China.
d) The Chinese Yuan level only affects China; it has no implication for the purposes of
international trade.

4.- According to the following exchange rates, where should be trading the cross
EURBRL?

EURUSD 1.4150
USDBRL 1.8106

a) Approximately EURBRL 2.5620.

b) Approximately EURBRL 1.2796.
c) Approximately EURBRL 0.7815.
d) Nothing of the above is correct.

5.- A foreign investor wants to sell CHF against USD (selling CHF and buying
USD). At what price can do this if the price of USDCHF provided by the bank is
1.2020/1.2028?

a) 1.2028.
b) 1.2020.
c) 1.2024.
d) 1.2000.

6.- You are considering a trip to Japan. If you need to exchange 6.000 Euros for
Japanese yen, how many yen will receive if market conditions at this time are:
EURJPY
165.30 / 165.45

a) 36.30 Japanese yen.

b) 36.26 Japanese yen.
c) 991,800 Japanese yen.
d) 992,700 Japanese yen.
7.- A client of our bank office has just returned from a trip to South Africa. He has
forgotten to exchange 2,455 South African rand and asks how many Euros are
equivalent to that quantity. If EURUSD exchange rate is 1.3235 and the USDZAR
is 9.48, the approximate amount of euros to receive is:

a) Approximately 259 Euros.

b) Approximately 196 Euros.
c) Approximately 343 Euros.
d) Approximately 1,758 Euros.

8.- If spot exchange rate for EURCAD trades at 1.5326 and interest rates for six
months are at 3.50% in the Eurozone and in 5.50% in Canada, we can say that the
exchange rate to 6 months forward EURCAD will be approximately:

a) EURCAD 1.5176.
b) EURCAD 1.5622.
c) EURCAD 1.5476.
d) EURCAD 1.5035.

9.- The spot exchange rate for New Zealand dollar (EURNZD) is at 1.9750, and
interest rates for 6 months of the Eurozone and New Zealand are at, respectively,
2.15% and in 3.75%. Which of the following answers is true?

a) EURNZD forward: 1.9594.

b) EURNZD forward: 1.9906.
c) EURNZD forward: 2.0000.
d) EURNZD forward: 1.9750.

11.- Calculate the 4 months forward rate for EURGBP using the following
information:

EURUSD spot: 1.3574

GBPUSD spot: 1.9902
EUR 4 months interest rate: 3.75%
USD 4 months interest rate: 5.25%
GBP 4 months interest rate: 4.95%

a) 0.6900
b) 0.6847
c) 1.4719
d) Nothing of the above is true.

13.- A Spanish exporter knows that in six months from now will be receiving a
payment 2.5 million JPY from a client in Japan. What can the Spanish exporter
do to hedge existing exchange rate risk?

a) Sell 2,500,000 JPY spot.

b) Buy 2,500,000 JPY forward 6 months.
c) Sell 2,500,000 JPY forward 6 months.
d) It is not possible to hedge this type of risks.
 Case Study 1
Currency investment

Given the following market information:

EURUSD spot 1.3250

GBPUSD spot 1.9200

Interest Rates
Term EUR USD GBP
1 month 2,099% 2,770% 4,860%
3 months 2,134% 2,970% 4,990%
6 months 2,176% 3,210% 5,078%

1) Calculate the 3 months forward exchange rate for EURUSD and EURGBP.

2) Today we have a cash surplus of 600,000 Euros to invest in a deposit for a period
of six months. If expectations of exchange rate for the date of maturity of the
transaction were:

EURUSD 1.2850
GBPUSD 1.8240

What currency would make the investment more profitable at expiration?

 Case Study 2
Hedging exchange rate risk

ELECTRA is a Spanish company that distributes electronic components in Spain

imported from the US. Its main supplier, AMERICAN TECH has made a shipment of
components amounting 1,200,000 USD to be paid within three months.

ELECTRA Chief Financial Officer fears that USD can move against their interests, so
he decides to inquire about the possibility of hedging EURUSD exchange rate risk.

1) Considering the following market information, which will be EURUSD 3 months

forward rate?

EURUSD spot rate: 1.3350

USD 3 months interest rate: 1.25%
EUR 3 months interest rate: 1.75%

2) What is the risk for ELECTRA, an appreciation or a depreciation of USD?

3) If within 3 months EURUSD is trading at 1.1820, how much will have saved the
company for hedging the commercial operation?