Question: 1 Assume that the spread is GBP 1 = 1.5500-1.6500 USD. Consider the situations of...

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Question: 1 Assume that the spread is GBP 1 = 1.5500-1.6500 USD. Consider the situations of three UK based companies: (a) K Ltd imports goods from Texas to the value of USD100,000. Payment is cash on delivery; What is the cost in sterling of this purchase? (b) L plc exports goods to California valued at USD50,000. Receipt of payment is immediate on delivery of the goods; What is the value of GBP received? (c) M Ltd wishes to buy a product from US that is for sale in the UK at GBP15 each; at what dollar price must it purchase the product? Question 2: If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy? Question 3: If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar? Question 4: Suppose 144 yen could be purchased in the foreign exchange market for one U.S. dollar today. If the yen depreciates by 8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow? Question 5: Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to make the bill payable in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw receive after it exchanged yen for U.S. dollars? Question 6: Given the following information: • The current spot exchange rate is 1 pound = 1.5025 USD. • The annual interest rate in the United Kingdom (UK) is 12%. The annual interest rate in the United States (US) is 15%. Calculate the 1-year forward exchange rate between the British pound and the US dollar using the Interest Rate Parity (IRP) theory. 1 Question: 1 Assume that the spread is GBP 1 = 1.5500-1.6500 USD. Consider the situations of three UK based companies: (a) K Ltd imports goods from Texas to the value of USD100,000. Payment is cash on delivery; What is the cost in sterling of this purchase? (b) L plc exports goods to California valued at USD50,000. Receipt of payment is immediate on delivery of the goods; What is the value of GBP received? (c) M Ltd wishes to buy a product from US that is for sale in the UK at GBP15 each; at what dollar price must it purchase the product? Question 2: If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U.S. dollar buy? Question 3: If one U.S. dollar buys 1.64 Canadian dollars, how many U.S. dollars can you purchase for one Canadian dollar? Question 4: Suppose 144 yen could be purchased in the foreign exchange market for one U.S. dollar today. If the yen depreciates by 8.0% tomorrow, how many yen could one U.S. dollar buy tomorrow? Question 5: Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a Japanese customer at a price of 143.5 million yen, when the exchange rate was 140 yen per dollar. In order to close the sale, DeGraw agreed to make the bill payable in yen, thus agreeing to take some exchange rate risk for the transaction. The terms were net 6 months. If the yen fell against the dollar such that one dollar would buy 154.4 yen when the invoice was paid, what dollar amount would DeGraw receive after it exchanged yen for U.S. dollars? Question 6: Given the following information: • The current spot exchange rate is 1 pound = 1.5025 USD. • The annual interest rate in the United Kingdom (UK) is 12%. The annual interest rate in the United States (US) is 15%. Calculate the 1-year forward exchange rate between the British pound and the US dollar using the Interest Rate Parity (IRP) theory. 1

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Question 1 a To calculate the cost in sterling of the purchase we need to use the ask rate higher rate from the given spread Cost in sterling USD10000... View the full answer