Finance 475

Problem Set #1

1) Suppose that a BMW costs E 45,000 in Germany and that the current USD/EUR exchange rate is 

    .7624.  Calculate the dollar price of the BMW.

 

2)  Consider the following exchange rates: 

        EUR/USD  = 1.2500 ($/Euro)

        USD/CAD = 1.1000 (CAD/$)

        EUR/CAD =  1.3550 (CAD/Euro)

      How could you use this information to make money in the currency markets? 

 

3) Suppose that you took a short position on 12,500,000 Japanese Yen future (remember, a short 

    position involves selling Yen) at a price of 104.5 Yen/$.  If the spot rate on the contract's expiration date 

    was 103.45 Yen/$, calculate your profit/loss from the futures contract. 

 

4)   Consider the following balance of payments data. (in billions of dollars)

    Merchandise Exports

    $100

    Merchandise Imports

    $125

    Service Imports

    $90

    Service Exports

    $80 

    Income received from abroad

    $110

    Income payments to foreigners

    $150 

    Increase in US ownership of private assets abroad

    $160 

    Increase in foreign ownership of private US assets

    $200 

    Increase in home official reserve assets

    $30 

    Increase in foreign official assets in US

    $35 

    Assuming that unilateral transfers are zero, find the trade balance, the current account balance, 

    the capital and financial accounts balance, the Balance of Payments, and the statistical discrepancy.

     

5) .  Suppose that the U.S. sells F-16 fighter planes to the Israeli government.  Explain how this transaction creates 

        offsetting credits and debits in the Balance of Payments accounts.