A Dutch company exporting to France had FF 3 million due in 90 days Suppose that the spot exchange rate was FF 1 DFl 0 3291 a Under the exchange rate mechanism, and assuming central rates of FF 6 45863 ECU and DFL 2 16979 ECU, what was the central cross exchange rate between the two currencies b Ba...

a Given central rates of DFl 216979ECU and FF 645863ECU for the Dutch guilder and French franc respe ...

A Dutch company exporting to France had FF 3 million due in 90 days. Suppose that the

Question:

A Dutch company exporting to France had FF 3 million due in 90 days. Suppose that the spot was FF 1 = DFl 0.3291.
a. Under the mechanism, and assuming central rates of FF 6.45863/ECU and DFL 2.16979/ECU, what was the central cross-exchange rate between the two currencies?
b. Based on the answer to Part a, what was the most the Dutch company could lose on its French franc receivable, assuming that France and the Netherlands stuck to the ERM with a 15% band on either side of their central cross rate?
c. Redo Part b, assuming the band was narrowed to 2.25%.
d. Redo Part b, assuming you know nothing about the spot cross-exchange rate.

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...