(2016-S1) - FINS3616 - Tutorial Slides - Week 02 - Introduction + FX Bas...

Tutorial
Week 02
Introduction to class, &
Exchange Rate Calculation Basics
B&H: Chapter 02
from BEKAERT & HODRICK International Financial Management (2E)
YOUR TUTOR & TUTOR IN CHARGE

Peter Kjeld Andersen
peter.andersen@unsw.edu.au
FINS3616 Peter Kjeld Andersen (2016-S1)
FROM FIRST SEMESTER 2014s CATEI EVALUATIONS
The best features of this facilitator's / tutor's teaching were:
Tutor was on time
Funny sometimes
Spoke proper English
Sick slides
This tutors teaching in this course could be improved by:
Sleeping more regularly. He is a little intimidating at the best of times, but

when grumpy...
Needs to be friendlier with students.
Acted a bit too arrogantly at times.
Need to be more approachable by students.
less intimidation with his chest and beard and mohawk
Dying his mohawk RAINBOW!!!

5
FROM 2015-S1S CATEI EVALUATIONS
The best features of this facilitator's / tutor's teaching were:
Telling rude students to shut up during class (definitely worked and was very
entertaining to watch the kid almost literally swallow his words)
Looks like Ragnar Lodbrok
Brutality to idiots who didnt raise their hands to speak
really really really really good tutorial slides omg - what is the point of a
lecture when I have these amazing tutorial slides?
A truly amazing feat of human hair growth aka The Petehawk, supplemented
by a healthy dose of arrogance, sarcasm, and inappropriate yet still financially
sensible examples which truly helped you to learn. Also his slides are
excellent. Almost as good as the mohawk. And the constantly putting people
down attitude.
FROM 2015-S2S CATEI EVALUATIONS
This tutors teaching in this course could be improved by:
Less of a combative attitude. He is simultaneously

misogynistic in his use of inappropriate classroom
examples, which although offensive admittedly further
his teaching, and hypocritically embraces the negative
female stereotypes of being excessively emotional and
moody in hounding students with emails. One does not
need to look further for an example of structural
patriarchy inflicting damage and confusion upon men
ASSESSMENT
DATE
HOW MUCH
Tutorial Attendance,
Homework, &
Groupwork
Participation
Every week
10%
Midsemester
Examination
Week 7 (in lecture)
30%
Group Project
Weeks 11 + 12
25%
Final Exam
Exam Period
35%
Class participation marks are designed for you to demonstrate that

you have prepared the assigned tutorial homework material prior
to class.
There will be new questions given to you in class, which you will
complete in your assignment groups. Doing these new questions in
a time-efficient manner will require you to have completed the
homework prior to class.
After an allotted amount of working time, groups will be chosen at

random to teach one of the questions to the rest of the class.
Everybody in the group must get up to present a portion of the
groups assigned question.
If you participate in every tutorial but are otherwise disruptive to
the class, or always on Facebook, or always on your phone dont
expect full participation grades.
10
LETS BEGIN
12
13
In FINS3616 we will write/quote exchange rates in the following manner:
USD0.9054/AUD
You would read/interpret this exactly the same way as you would read
USD0.9054/packet of chewing gum

That is:
The cost to buy one AUD is USD0.9054.
The price you could sell one AUD for is USD0.9054

We use this method because it makes the more complex calculations we do later in
the subject more intuitive for you to understand.
In FINS1612 (and the newspaper & on Google Finance), it would be written as:
AUD/USD0.9054
14
15
Q. What is an appreciation of the dollar relative to the pound? What happens to

the dollar price of the pound in this situation?
A. An appreciation of the dollar relative to the pound means that it will take less
dollars to buy one pound.
Thus, the dollar price of the pound is now lower after the appreciation of the
dollar.
Lets say that

was the original rate.
The question states that the USD has APPRECIATED relative to the GBP.
This means that, conversely, the GBP has depreciated relative to the USD.
i.e. each GBP is now able to buy less USD than before.
So the new value may be something like
16
Q. The exchange rate at the start of the year was

. However, the
value of the USD has since then appreciated by 25% against the value of the
AUD. What is the current USD price of one AUD?
A. It is tempting to say that if the USD has appreciated by 25% against the AUD,
then the AUD has depreciated by 25% against the USD.
So that you could just work out the new price of an AUD by multiplying by 0.75
again, in which case you would get
THIS IS WRONG!!! (it doesnt work mathematically).
Lets take a look at why:
First,
can be inverted to
If the USD appreciates 25% against the AUD, how many AUD can one USD
purchase?
x (1 + 0.25) =
So what is the value if we convert back to the USD price of an AUD?
..which is the same as 1.00 DIVIDED by (1 + 0.25)
rather than multiplied by (1 - 0.25), which is incorrect
17
Q. The Mexican peso has weakened considerably relative to the dollar, and you
are trying to decide whether this is a good time to invest in Mexico. Suppose
the current exchange rate of the Mexican peso relative to the U.S. dollar is
MXN 9.5/USD. Your investment advisor at Goldman Sachs argues that the
peso will lose 15% of its value relative to the dollar over the next year. What
is Goldman Sachss forecast of the exchange rate in 1 year?
A. Although the Mexican peso is currently quoted as MXN 9.5/USD, this is the
equivalent of USD 0.10526/MXN when we take the reciprocal.
If the value of the MXN falls by 15%, it will be worth:
USD 0.10526/MXN x (1 0.15) = USD 0.08947/MXN

This can be re-expressed as MXN 11.1765/USD when we take the reciprocal.
This is the same as MXN 9.5/USD divided by (1 15%).
Note that the MXN 11.1765/USD answer is MORE than 15% bigger than the original MXN
9.500/USD exchange rate.
Remember, the currency that is appreciating will ALWAYS appreciate by a bigger
percentage than the magnitude of the percentage depreciation of the second currency.
18
Q. Alumina Limited of Australia has called Mitsubishi UFJ Financial Group to get
its opinion about the Japanese yenAustralian dollar exchange rate.
The current rate is 67.72/A$, and Mitsubishi thinks the Australian dollar will
weaken by 5% over the next year. What is Mitsubishi UFJs forecast of the
future exchange rate?
A. If the Australian dollar weakens by 5% over the next year, it will take 5% fewer
Japanese yen to purchase the Australian dollar. Thus, the forecast is
67.72/A$ x (1 0.05) = 64.334/A$
Ask yourself if the value of the YEN appreciates by 25% against the AUD, by what % would the AUD
depreciate against the YEN? What about 100%? What about 100,000,000,000%
AUD
1
1
1
YEN
1
0
.
25
1 %
0.20 20%
1
1
1 1.00
1
1 0.99999999 99.999999%
1 1,000,000,000
0.50 50%
There is an asymptote at 100%, because an

exchange rate can never become negative.
19
20
Q. Mississippi Mud Pies, Inc. needs to buy 1,000,000 Swiss francs (CHF) to pay its
Swiss chocolate supplier. Its banker quotes bidask rates of CHF1.3990/USD
CHF1.4000/USD. What will be the dollar cost of the CHF1,000,000?
A. How to break this down:
The company wants to buy CHF, which means theyre selling USD.
If theyre selling USD, theyll have to do that at the lower CHF/USD price,
which is the banks bid of CHF1.3990/$.
Remember the bank must make a profit on each USD from their
bid/ask. The bank WONT be generous and let you sell each USD to
them for the higher CHF1.4000 price.
If the company is purchasing CHF 1,000,000 at a price of CHF1.3990/USD,
how many USD do they pay?
Cost in USD
CHF 1,000,000
1,000,000
USD 714, 796
USD
CHF1.3990/USD
1.3990
21
22
Q. If the Japanese yenU.S. dollar exchange rate is 104.30/$, and it takes 25.15
Thai bahts to purchase 1 dollar, what is the yen price of the baht?
A. To prevent triangular arbitrage, the direct quote of the yen price of the baht
(/THB) must equal the yen price of the dollar times the dollar price of the
baht (which is the reciprocal of the baht price of the dollar):
YEN104.30/USD YEN4.1471/THB
THB25.15/USD
23
How to tell if there is a triangular arbitrage profit and how to make it:
When you arrange the quotes as follows, the cross multiplication should
equal one
CAD1.60 USD1.25 EUR0.5
i.e.
1
USD
EUR
CAD
CASE 1: If it is less than 1, sell the currencies in the numerator to buy the
currencies in the denominator of each quote.
e.g.
USD
EUR
CAD
0.8
i.e. 1
Sell CAD 1.60 to buy USD 1.00.

Because our arbitrage test < 1,
our % profits here could be
Sell USD 1.00 and buy EUR 0.80.
calculated quickly by taking the
reciprocal as follows:
Sell EUR 0.80 and buy CAD 2.00.
(1 / 0.80) 1 = 0.25 = 25%
You now have CAD 0.4 more than when you started.
24
How to tell if there is a triangular arbitrage profit and how to make it:
When you arrange the quotes as follows, the cross multiplication should
equal one
i.e.
1
USD
EUR
CAD
CASE 2: If it is greater than 1, sell the currencies in the denominator to buy

the currencies in the numerator.
e.g.
USD
EUR
CAD
1.2
i.e. 1
Sell USD 1.00 and buy CAD 1.60.

Because our arbitrage test > 1, our
% profits here could be calculated
Sell CAD 1.60 and buy EUR 0.96.
quickly by subtracting 1.
Sell EUR 0.96 and buy USD 1.20.
1.2 1 = 0.2 = 20%
You now have USD 0.2 more than when you started.
25
Q. As a foreign exchange trader, you see the following quotes for Canadian
dollars (CAD), U.S. dollars (USD), and Mexican pesos (MXN):
USD0.7047/CAD
MXN6.4390/CAD
MXN8.7535/USD
Is there an arbitrage opportunity, and if so, how would you exploit it??
A. Flip the MXN/CAD quote and then arrange them to follow the rules
USD0.7047 CAD0.15530 MXN8.7535

0.9580 i.e. < 1
CAD
MXN
USD
As it is less than 1, sell the currencies in the numerator to buy the currencies in
the denominator.
Because our arbitrage test < 1,
I.
Sell USD 1.00 and buy CAD 1.4190.
our % profits here could be
calculated quickly by taking the
II. Sell CAD 1.419 and buy MXN 9.1372.
reciprocal as follows:
(1 / 0.9580) 1 = 0.0438
III. Sell MEX 9.1369 and buy USD 1.0438.
IV. You now have USD 0.0438 more than when you started.
26
27
Q. Deutsche Bank quotes bidask rates of $1.3005/$1.3007/ and 104.30104.40/$. What would be Deutsche Banks direct asking price of yen per euro
(/)?
A. The direct asking price of yen per euro (/) is the price at which you the
customer will buy euros from (and sell yen to) the bank.
So first, identify the rates at which you can buy euros and sell yen against the
dollar.
These are $1.3007/ and 104.40/$ respectively
note that selling Yen is the same as buying $, hence the higher ask price per $
Then, create the cross rate:

USD 1.3007 YEN104.40
1.3007 YEN104.40
EUR
USD
EUR
YEN135.79
YEN135.79 / EUR
EUR
28
29
Q. The following table contains the bid and ask rates for trading between the
Euro, the Japanese Yen, and the Australian Dollar:
BID
YEN 128.71/EUR
YEN 92.50/AUD
AUD 1.3912/EUR
ASK
YEN 128.74/EUR
YEN 92.52/AUD
AUD 1.3915/EUR
Is there an arbitrage profit available? How did you arrive at this conclusion?
A. Method 1: Manually try going each way around the triangle
First direction (EUR -> YEN -> AUD -> EUR)
Start with EUR 1.00
Sell your EUR 1.00 at YEN 128.71/EUR to get YEN 128.71
Spend your YEN 128.71 to purchase AUD at YEN 92.52/AUD to get AUD 1.391159
Spend your AUD 1.391159 to purchase EUR at AUD 1.3915/EUR to get EUR 0.99975
Youve finished with LESS than the EUR 1.00 you started with. No arbitrage
30
Q. The following table contains the bid and ask rates for trading between the
Euro, the Japanese Yen, and the Australian Dollar:
BID
YEN 128.71/EUR
YEN 92.50/AUD
AUD 1.3912/EUR
ASK
YEN 128.74/EUR
YEN 92.52/AUD
AUD 1.3915/EUR
Is there an arbitrage profit available? How did you arrive at this conclusion?
A. Method 1: Manually try going each way around the triangle
Second direction (EUR -> AUD -> YEN -> EUR)
Start with EUR 1.00
Sell your EUR 1.00 at AUD 1.3912/EUR to get AUD 1.3912
Sell your AUD 1.3912 at YEN 92.50/AUD to get YEN 128.686
Spend your YEN 128.686 to purchase EUR at YEN 128.74/EUR to get EUR 0.99958
Youve finished with LESS than the EUR 1.00 you started with. No arbitrage again
31
A.
Method 2: Calculating an implied cross-rate bid/ask spread and comparing it

to the quoted market bid/ask spread.
Use the 1st and 3rd lines of the table to work out what the YEN cross-rates
SHOULD be:
If I was to buy one EUR using AUD, I would pay AUD 1.3915 to get it
If I was to sell one EUR using YEN, I would receive YEN 128.71
Therefore the effective calculated cross-exchange rate (BID) is:
YEN 128.71 / EUR

YEN 92.4973 / AUD
AUD 1.3915 / EUR
If I was to buy one EUR using YEN, I would pay YEN 128.74 to get it
If I was to then sell that one EUR to get AUD, I would receive AUD 1.3912
Therefore the effective calculated cross-exchange rate (ASK) is:
YEN 128.74 / EUR

YEN 92.5388 / AUD
AUD 1.3912 / EUR
32
YEN 92.52/AUD
YEN 92.50/AUD
QUOTED MARKET RATES
BID
YEN 92.4973/AUD
ASK
BUYING each AUD at the

quoted market ask rate of YEN
92.52 each is cheaper than
buying it via the calculated
cross ask rate of YEN 92.5388
each.
YEN 92.5388/AUD
CALCULATED CROSS-RATES
BID
ASK
Then SELLING each AUD at the

quoted market bid rate of YEN
92.50 is marginally better than
selling them at the calculated
cross bid rate of YEN 92.4973.
By selling them at the calculated cross bid rate, this

actually means using the two exchange rates that went
into calculating that cross rate:
Using each AUD to buy EUR at AUD 1.3915/EUR
.then selling those EUR at YEN 128.71/EUR
Even though we are buying AUD via the cheapest method and selling it at
the highest price we can, were still paying more YEN per AUD than were
selling it for. Therefore, there are no arbitrage profits.
33
In order for there to be an arbitrage possible, youd need a situation like the above
where there is an ASK price that you can buy a currency for SMALLER than a BID
price that you can sell that same currency for.
YEN 92.50/AUD
BID
QUOTED
MARKET
RATES
YEN 92.52/AUD
YEN 92.5250/AUD
ASK
BID
YEN 92.54/AUD
CALCULATED
CROSS RATES
ASK
i.e. In order for triangular arbitrage to be present when dealing with bid/ask
spreads, the two bid/ask spreads cannot overlap at all.
34
44
Q. Illustrate the difference between direct and indirect quotes of an exchange

rate.
A. A direct quote for a GIVEN currency gives the price of one unit of the OTHER
currency in terms of the given currency. That is, in the form
GIVEN CURRENCY X.XXXX / OTHER CURRENCY.
e.g. AUD 1.3781/EUR is a direct quote for the AUD
An indirect quote for a GIVEN currency gives the price of one unit of the given
currency in terms of the other currency. That is, in the form
OTHER CURRENCY X.XXXX / GIVEN CURRENCY.
e.g. EUR 0.7256/AUD is an indirect quote for the AUD
45
Given the following bid-ask spread: EUR 0.8316/AUD EUR 0.7661/AUD
Q. Is this a direct or indirect quote (and from whose viewpoint)?

This is an indirect quote from the Australian perspective, as the Bid > Ask.
Despite how this looks, remember that the quoting bank must still make a
profit from the bid/ask spread.
Instead of the bank buying the denominator currency from you (the
customer) at the Bid as per normal with direct quotations, with indirect
quotations the bank is buying the numerator currency at the Bid.
The bank buys EUR 0.8316 from you for every one AUD it pays out to you at the Bid
Instead of the bank selling the denominator currency to you (the customer)
at the Ask as per normal with direct quotations, with indirect quotations
the bank is selling the numerator currency at the Ask.
The bank sells EUR 0.7661 to you for every one AUD it collects from you at the Ask
46
Given the following bid-ask spread: EUR 0.8316/AUD EUR 0.7661/AUD
Q. Convert the above rate to both direct and indirect quotation from the other
countrys perspective.
Alternatively, a direct quote from the Australian perspective would be:
AUD 1.2025/EUR AUD 1.3053/EUR
Changing it to a direct quote from the Eurozone perspective, we get:
EUR 0.7661/AUD EUR 0.8316/AUD
And so thus an indirect quote from the Eurozone perspective would give
47
XXX Currency perspective
YYY Currency perspective
DIRECT
XXX/YYY: LHS < RHS
YYY/XXX: LHS < RHS
INDIRECT
YYY/XXX: LHS > RHS
XXX/YYY: LHS > RHS
AUSTRALIAN perspective
EUROZONE perspective
DIRECT
INDIRECT
Always remember to FIRST look at whether the Bid is less than the Ask:
If Bid < Ask, its a Direct quote so the perspective currency is in the numerator.
If Bid > Ask, its an Indirect quote so the perspective currency is in the denominator.
48
When the goal of a problem isnt to identify direct or indirect quotations, but
rather to use and apply those exchange rates to some other purpose (such as
triangular arbitrage, etc.), I personally never think about exchange rates in
terms of direct vs. indirect or bid vs. ask or buying vs. selling in order to
decide which rates to use at a given step of a calculation.
The bank ALWAYS is quoting you a spread from which THEY make a profit on
a round-trip transaction.
This is why I feel that the words bid and ask are unnecessary.
And they are probably a hindrance to you developing true intuitive learning of
the topic.
On the following slide note that I dont use the words buy or sell at all.
I personally identify the correct rate in terms of giving and getting.
The bank or dealer always gets more and gives less. Like a bad lover.
And you, the customer, always give more and get less. Like a chump.
49
HKD 5.1235/AUD HKD 5.0338/AUD and YEN 86.24/AUD YEN 84.71/AUD

Looking at the above exchange rates
A.
If Ive got a bunch of AUD in my account and want to convert to HKD, at which rate will I be
able to do that?
i.
Will the bank give me 5.1235 HKD for each AUD that I give them?
ii.
Or will the bank give me 5.0338 HKD for each AUD that I give them?
B.
If Ive got a bunch of HKD in my account and want to convert to AUD, at which rate will I be
able to do that?
i.
Will the bank require me to give them 5.1235 HKD for each AUD that I get from
them?
ii.
Or will the bank require me to give them 5.0338 HKD for each AUD that I get from
them?
C.
If Ive got a bunch of YEN in my account and want to convert to AUD, at which rate will I be
able to do that?
i.
Will the bank require me to give them 86.24 YEN for each AUD that I get from them?
ii.
Or will the bank require me to give them 84.71 YEN for each AUD that I get from
them?
D.
If Ive got a bunch of AUD in my account and want to convert to YEN, at which rate will I be
able to do that?
i.
Will the bank give me 86.24 YEN for each AUD that I give them?
ii.
Or will the bank give me 84.71 YEN for each AUD that I give them?
50
51
Q. Given HKD 5.1235/AUD-HKD 5.0338/AUD & YEN 86.24/AUD-YEN 84.71/AUD

Calculate the equilibrium cross rate between the HKD and the Yen.
A. To answer this question, we need to find two cross rates:
1.
2.
The HKD../YEN rate at which we could sell HKD to the bank to buy YEN.
The HKD../YEN rate at which we could sell YEN to the bank to buy HKD.
As the AUD is in the denominator, its easier to think of what you (a customer) is doing with the AUD.
i.e. we buy AUD from the bank at the high price, and sell AUD to them at the low price.
To find the sell HKD / buy YEN rate, use the rates for doing those things against the AUD:
If Im selling HKD, Im simultaneously buying AUD.
And when I buy AUD from the bank, I pay the higher price: HKD 5.1235/AUD
If Im buying YEN, Im simultaneously selling AUD.
When I sell AUD to the bank, I receive the lower price: YEN 84.71/AUD
So the sell HKD / buy YEN rate is HKD 5.1235 / YEN 84.71 = HKD 0.0604/YEN
52
Q. Given HKD 5.1235/AUD-HKD 5.0338/AUD & YEN 86.24/AUD-YEN 84.71/AUD

Calculate the equilibrium cross rate between the HKD and the Yen.
A. To answer this question, we need to find two cross rates:
1.
2.
The HKD../YEN rate at which we could sell HKD to the bank to buy YEN.
The HKD../YEN rate at which we could sell YEN to the bank to buy HKD.
As the AUD is in the denominator, its easier to think of what you (a customer) is doing with the AUD.
i.e. we buy AUD from the bank at the high price, and sell AUD to them at the low price.
To find the buy HKD / sell YEN rate, use the rates for doing those things against the AUD:
If Im buying HKD, Im simultaneously selling AUD.
And when I sell AUD to the bank, I receive the lower price: HKD 5.0338/AUD
If Im selling YEN, Im simultaneously buying AUD.
When I buy AUD from the bank, I pay the higher price: YEN 86.24/AUD
So the buy HKD / sell YEN rate is HKD 5.0338 / YEN 86.24 = HKD 0.0584/YEN
53
If the market rate between Yen and HKD in Hong Kong is

HKD 0.0582/YEN - HKD 0.061/YEN
Q. is there an arbitrage opportunity for an Australian arbitrageur who has AUD
1m under his/her disposal?
A. No, there is no arbitrage opportunity available.
If you were to purchase one YEN at the quoted market cross rate (and pay HKD
0.061) and sell it through the calculated cross rates from the previous question
(and receive HKD 0.0584), you would clearly make a loss for each YEN.
Similarly, if you were to purchase one YEN at the calculated cross rates (and
pay HKD 0.0604) and sell it through the quoted market rate (and receive HKD
0.0582), you would likewise make a loss on each YEN.
54
BID
HKD 0.0584/YEN
BID
ASK
Calculated Cross
Rates
HKD 0.0604/YEN
Quoted Market Rates
HKD 0.0582/YEN
ASK
HKD 0.061/YEN
The two buying (i.e. ask) prices for the YEN are both higher than the
prices at which you could sell the YEN (i.e. bids).
Therefore, no arbitrage is possible.
55
Q. Repeat part B. for a spread of HKD 0.062/YEN HKD 0.065/YEN.
Yes, there is an arbitrage opportunity available, if the appropriate transactions

are executed.
BID
HKD 0.0584/YEN
Calculated Cross
Rates
ASK
HKD 0.0604/YEN
BID
Quoted Market Rates
HKD 0.0620/YEN
ASK
HKD 0.0650/YEN
Purchase YEN with HKD via the AUD using the calculated cross rate of HKD
0.0604/YEN.
Then sell YEN for HKD using the quoted cross rate of HKD 0.0620/YEN.
The three steps from a base of AUD 1m would be as follows:

We multiplied
I. Sell your AUD 1m at YEN 84.71/AUD = Receive YEN 84.71m
We multiplied
II. Sell YEN 84.71m at HKD 0.0620/YEN = Receive HKD 5.25202m
III. Sell HKD 5.25202m at HKD 5.1235/AUD = Receive AUD 1,025,084.41 We divided
Your profit is AUD 25,084.41
56
57
Q.
The biggest traders in the foreign exchange markets are ____.
a)
commercial banks
b)
corporations
c)
government agencies
d)
governments
e)
individual investors
The answer is a)
Q.
Which one of the following features is not part of the interbank foreign
exchange market?
a)
derivative securities such as foreign currency futures and options
b)
trade in swaps and forward contracts
c)
immediate exchanges of monies
d)
non-strategic loans
e)
none of the above
The answer is d)
Q.
S$/ArPeso = $0.35/ArPeso and SArPeso/Rand = ArPeso0.31/Rand. What is SRand/$?
a)
Rand0.886/$
b)
Rand1.129/$
c)
Rand3.226/$
d)
Rand3.459/$
e)
Rand9.217/$
The answer is e)
SUSD/ZAR SUSD/ARS SARS/ZAR
USD 0.35 ARS 0.31 USD 0.1085
ARS
ZAR
ZAR
SZAR/USD
1
SUSD/ZAR
1
ZAR 9.2166/USD
USD 0.1085/ZAR
Q.
What do the market makers in the currency markets provide?
a)
insurance against default by the buyers
b)
solvency
c)
stability
d)
liquidity
e)
collateral
The answer is d)
Q.
Which one of the following firms dominates the foreign exchange markets?
a)
No one firm dominates.
b)
Deutsche Bank
c)
UBS
d)
Citigroup
e)
Rio Tinto
The answer is a)
Q.
The foreign exchange desks of commercial banks typically make their profits
through ____.
a)
arbitrage
b)
government subsidies
c)
investment banking
d)
market making
e)
speculation
The answer is d)
Q.
The spot rate is $1.00/ and the one-year spot rate is $1.10/. What is
percentage change in the dollar?
a)
10%
b)
9.1%
c)
0%
d)
-9.1%
e)
-10%
The answer is d)
Start of Year: S$/0 $1.00/
S0/$ 1.00/$
End of Year: S1$/ $1.10/
S1/$ 0.9091/$
S1/$
s /$ 1
S0
$
0.9091/$
1
1.00 /$
-0.0909091 9.01%
THE END
81

(2016-S1) - FINS3616 - Tutorial Slides - Week 02 - Introduction + FX Bas...

Încărcat de

Informații document

Descriere originală:

Drepturi de autor

Formate disponibile

Partajați acest document

Partajați sau inserați document

Opțiuni de partajare

Vi se pare util acest document?

Este necorespunzător acest conținut?

Drepturi de autor:

Formate disponibile

(2016-S1) - FINS3616 - Tutorial Slides - Week 02 - Introduction + FX Bas...

Încărcat de

Drepturi de autor:

Formate disponibile

Tutorial

from BEKAERT & HODRICK International Financial Management (2E)

YOUR TUTOR & TUTOR IN CHARGE

FINS3616 Peter Kjeld Andersen (2016-S1)

FROM FIRST SEMESTER 2014s CATEI EVALUATIONS

The best features of this facilitator's / tutor's teaching were:

Tutor was on time

Spoke proper English

This tutors teaching in this course could be improved by:

Sleeping more regularly. He is a little intimidating at the best of times, but

Needs to be friendlier with students.

Acted a bit too arrogantly at times.

Need to be more approachable by students.

less intimidation with his chest and beard and mohawk

Dying his mohawk RAINBOW!!!

FINS3616 Peter Kjeld Andersen (2016-S1)

FINS3616 Peter Kjeld Andersen (2016-S1)

FROM 2015-S1S CATEI EVALUATIONS

The best features of this facilitator's / tutor's teaching were:

Looks like Ragnar Lodbrok

Brutality to idiots who didnt raise their hands to speak

FINS3616 Peter Kjeld Andersen (2016-S1)

FROM 2015-S2S CATEI EVALUATIONS

This tutors teaching in this course could be improved by:

Less of a combative attitude. He is simultaneously

FINS3616 Peter Kjeld Andersen (2016-S1)

Week 7 (in lecture)

FINS3616 Peter Kjeld Andersen (2016-S1)

Class participation marks are designed for you to demonstrate that

After an allotted amount of working time, groups will be chosen at

FINS3616 Peter Kjeld Andersen (2016-S1)

In FINS3616 we will write/quote exchange rates in the following manner:

USD0.9054/packet of chewing gum

The price you could sell one AUD for is USD0.9054

FINS3616 Peter Kjeld Andersen (2016-S1)

Q. What is an appreciation of the dollar relative to the pound? What happens to

Lets say that

So the new value may be something like

FINS3616 Peter Kjeld Andersen (2016-S1)

Q. The exchange rate at the start of the year was

FINS3616 Peter Kjeld Andersen (2016-S1)

USD 0.10526/MXN x (1 0.15) = USD 0.08947/MXN

FINS3616 Peter Kjeld Andersen (2016-S1)

FINS3616 Peter Kjeld Andersen (2016-S1)

There is an asymptote at 100%, because an

FINS3616 Peter Kjeld Andersen (2016-S1)

FINS3616 Peter Kjeld Andersen (2016-S1)

CAD1.60 USD1.25 EUR0.4

Sell CAD 1.60 to buy USD 1.00.

FINS3616 Peter Kjeld Andersen (2016-S1)

CASE 2: If it is greater than 1, sell the currencies in the denominator to buy

CAD1.60 USD1.25 EUR0.6

Sell USD 1.00 and buy CAD 1.60.

FINS3616 Peter Kjeld Andersen (2016-S1)

USD0.7047 CAD0.15530 MXN8.7535

FINS3616 Peter Kjeld Andersen (2016-S1)

Then, create the cross rate:

FINS3616 Peter Kjeld Andersen (2016-S1)

First direction (EUR -> YEN -> AUD -> EUR)

Start with EUR 1.00

Sell your EUR 1.00 at YEN 128.71/EUR to get YEN 128.71

FINS3616 Peter Kjeld Andersen (2016-S1)

Second direction (EUR -> AUD -> YEN -> EUR)