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Read the excerpt below from Wall Street journal and answer questions: … last week, the dollar ranged from 135. 85 to 111.45 yen. While analysts used to see four-yen moves of the dollar as volatile, a repeat of last week’s ranges won’t come as a surprise this week.
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Read the excerpt below from Wall Street journal and answer questions: … last week, the dollar ranged from 135. 85 to 111.45 yen. While analysts used to see four-yen moves of the dollar as volatile, a repeat of last week’s ranges won’t come as a surprise this week. Last Friday in New York, the dollar was trading at 116.68 yen, down from 119.45 Thursday. The U.S. currency also traded at 1.6368 marks, up from 1.6350. Sterling was at $1.7065, down from $1.7110. Qs: • Is the exchange rate quote for the U.S. dollar a direct or indirect quote on the (a) yen? (b) mark? (c) sterling (British pound)? • (a) From Thursday to Friday, what percentage change in the value of the dollar occurred against the yen? (b) sterling (Remember to mind your quoted and base currencies!) • Using the mark as the base currency, what is Friday’s cross rate between the yen and mark? • Using sterling as the base currency, what is Friday’s cross rate between the mark and sterling?
1. The exchange rate quote for the U.S. dollar is:a) A direct quote on the yen. b) A direct quote on the mark. c) An indirect quote on sterling (the pound).2. a) {(116.68 - 119.45) / 119.45} x 100% = -2.32%b) First, we convert the direct quote on the U.S. dollar to an indirect quote on the dollar. This makes the dollar the base currency and we can therefore calculate the change in its value. We convert the quote of $1.7065/pound by dividing 1.7065 into 1 to get 0.5860 pounds/$. We convert the quote of $1.7110/pound by dividing 1.7110 into 1 to get 0.5845 pounds/$. Plugging these numbers into our formula [{(0.5860 – 0.5845) / 0.5845} x 100] we arrive at an answer of +0.26%.3. Friday’s cross rate between the yen and mark (with the mark as the base currency) is ¥ 71.285/DM (116.68/1.6368).4. To calculate Friday’s cross rate between the mark and sterling, we first convert the indirect quote on sterling to a direct quote on sterling by dividing 1.7065 into 1 to get 0.5860 pounds/$. Thus Friday’s cross rate between the mark and sterling (with sterling as the base currency) is DM2.7932/pound (DM1.6368 / 0.5860).
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