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


    Merchandise Imports


    Service Imports


    Service Exports


    Income received from abroad


    Income payments to foreigners


    Increase in US ownership of private assets abroad


    Increase in foreign ownership of private US assets


    Increase in home official reserve assets


    Increase in foreign official assets in US


    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.