Question 1. A firm has the following account balances Account Balance USD Account $3,500 EUR Account
Question:
Question 1.
A firm has the following account balances
Account Balance
USD Account $3,500
EUR Account 5,150
GBP Account 1,000
The currency rates are as follows:
GBP/USD 1.0010/$
EUR/GBP 0.9855/
USD/EUR $1.2750/
The manager is considering converting and holding all three accounts to a single currency.
Required:
- What would be the total in the account if all amounts are in GBP?
- What would be the total in the account if all amounts are in USD?
Question 2.
Miguel Paxton is a trader in New York. Miguel has $750,000 as investment capital. He has obtained the following currency rates that he believes may be used to produce an arbitrage gain.
Premiere Bank USD/GBP $1.0010/
Queen's Bank EUR/GBP 0.9855/
Barcelona Bank USD/EUR $1.2750/
Required: Use the currency rates provided to show the arbitrage paths and whether an arbitrage gain is possible.
Question 3.
A multinational firm domiciled in Jamaica has the following balances on its books:
Receivables
US$23,450
Euro 11,900
Payables
US$6,350
Euro 2,200
The current exchange rates are as available:
Sport rate J$136/$
Spot rate J$154/
Required:
- What is the total value of the firm's receivables?
- What is the total value of the firm's payables?
- Assume the currency rates change to J$140/$ and J$152/. a. What is the new receivables total?b. By what percentage did the firm's payables change?
Fundamentals of Advanced Accounting
ISBN: 978-0077667061
5th edition
Authors: Joe Ben Hoyle, Thomas Schaefer, Timothy Doupnik