Consider the following illustrative exchange rates. (1) Are these currency prices direct quotations or indirect quotations? (2)

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Consider the following illustrative exchange rates.

(1) Are these currency prices direct quotations or indirect quotations?
(2) Calculate the indirect quotations for euros and kronor (the plural of krona is kronor).

(3) What is a cross rate? Calculate the two cross rates between euros and kronor.
(4) Assume Citrus Products can produce a liter of orange juice and ship it to Spain for $1.75. If the firm wants a 50% markup on the product, what should the orange juice sell for in Spain?

(5) Now assume that Citrus Products begins producing the same liter of orange juice in Spain. The product costs 2 euros to produce and ship to Sweden, where it can be sold for 20 kronor. What is the dollar profit on the sale?
(6) What is exchange rate risk?

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Corporate Finance A Focused Approach

ISBN: 978-1439078082

4th Edition

Authors: Michael C. Ehrhardt, Eugene F. Brigham

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