1. You just came back from Canada, where the Canadian dollar was worth 0.43. You still have C$200 from your trip and could exchange them for pounds at the airport, but the airport foreign exchange desk will only buy them for 0.40. Next week, you will be going to Mexico and will need pesos. The airport foreign exchange desk will sell you pesos for 0.055 per peso. You met a tourist at the airport who is from Mexico and is on his way to Canada. He is willing to buy your C$200 for 1500 New Pesos. Should you accept the offer or cash the Canadian dollars in at the airport? Explain. 2. Explain how the appreciation of the Japanese yen against the UK pound would affect the return to a UK firm that borrowed Japanese yen and used the proceeds for a UK project 3. On August 8, 2000, Zimbabwe changed the value of the Zim dollar from Z$38/US$ to Z$50/US$. a) What was the original U.S. dollar value of the Zim dollar? What is the new U.S. dollar value of the Zim dollar? b) By what percentage has the Zim dollar devalued (revalued) relative to the U.S. dollar? c) By what percentage has the U.S. dollar appreciated (depreciated) relative to the Zim dollar? 4. On February 1, the euro is worth $0.8984. By May 1, it has moved to $0.9457. a) By what percentage has the euro appreciated or depreciated against the dollar during this three-month period? Felix Narteh Akplehey (Teaching Assistant) 2|Page b) By what percentage has the dollar appreciated or depreciated against the euro during this period? 5. Assume Poland's currency (the zloty) is worth 0.17 and the Japanese yen is worth 0.005. What is the cross (implied) rate of the zloty with respect to yen? 6. Kofigo bought a put option on British pounds for $.04 per unit. The strike price was $1.80 and the spot rate at the time the pound option was exercised was $1.59. Assume there are 31,250 units in a British pound option. What was Kofigo's net profit on the option? 7. Mike sold a call option on Canadian dollars for 0.01 per unit. The strike price was 0.42/C$, and the spot rate at the time the option was exercised was 0.46/C$. Assume Mike did not obtain Canadian dollars until the option was exercised. Also assume that there are 50,000 units in a Canadian dollar option. What was Mike's net profit on the call option? 8. Brian sold a put option on Canadian dollars for 0.02 per unit. The strike price was 0.42, and the spot rate at the time option was exercised was 0.40. Assume Brian immediately sold off the Canadian dollars received when the option was exercised. Also assume that there are 50,000 units in a Canadian dollar option. What was Brian's net profit on the put option? 9. Legon Students Corporate (LSC) purchased Canadian dollar call options for speculative purposes. If these options are exercised, LSC will immediately sell the Canadian dollars in the spot market. Each option was purchased for a premium of $.03 per unit, with an exercise price of $.75. LSC plans to wait until the expiration date before deciding whether to exercise the options. Of course, LSC will exercise the options at that time only if it is feasible to do so. In the following table, fill in the net profit (or loss) per unit to LSC based on the listed possible spot rates of the Canadian dollar on the expiration date. Felix Narteh Akplehey (Teaching Assistant) 3|Page Possible Spot Rates $0.74 $0.76 $0.78 $0.80 $0.73 $0.71 $0.90 Profit Loss 10. Atta Adwoa Cooperation has purchased Canadian dollar put options for speculative purposes. Each option was purchased for a premium of .02 per unit, with an exercise price of 0.48 per unit. Atta Adwoa Cooperation will purchase the Canadian dollars just before it exercises the options (if it is feasible to exercise the options). It plans to wait until the expiration date before deciding whether to exercise the options. In the following table, fill in the net profit (or loss) per unit to Adwoa Cooperation based on the listed possible spot rates of the Canadian dollar on the expiration date. Possible Spot Rates $0.36 $0.39 $0.45 $0.47 $0.48 $0.54 $0.60 Profit Loss