d$.$ If the U$.$S$.$ dollar were to weaken by $10\%$ only against the Japanese yen and remained constant relative to all other foreign currencies, what would the dollar and percentage profits be for the SY$-20?$

Once again, we must reconstruct the currency table from the top of the worksheet. This time, however, we will only be changing the exchange rate for the yen. Again, we will be multiplying the old rate by $(1+\%$ change$).$ Since there is a weakening of the dollar, that is an increase in the direct quote.

Change in dollar strength against Japanese yen $10\%$

Direct Indirect New Direct

Quotations Quotations Quotations

British pound $1\mathrm{.}906900\mathrm{.}52440$

Mexican peso $0\mathrm{.}0919010\mathrm{.}87780$

Euro $1\mathrm{.}284100\mathrm{.}77880$

Japanese yen $0\mathrm{.}00870115\mathrm{.}114500\mathrm{.}00957$

Now, we will recompute the component costs and sales price of the SY$-20.$

Component X

Cost of X in $ $=$ Cost in euros x Direct spot exchange rate $($$$/$euro$)$

Cost of X in $ $=84\mathrm{.}00$ x $1\mathrm{.}2841$

New cost of X in $ $=$ $$107\mathrm{.}86$

Component Y

Cost of Y in $ $=$ Cost in pesos x Direct spot exchange rate $($$$/$peso$)$

Cost of Y in $ $=650\mathrm{.}00$ x $0\mathrm{.}0919$

New cost of Y in $ $=$ $$59\mathrm{.}74$

Component Z

Cost of Z in $ $=$ Cost in pounds x Direct spot exchange rate $($$$/$pound$)$

Cost of Z in $ $=105\mathrm{.}00$ x $1\mathrm{.}9069$

New cost of Z in $ $=$ $$200\mathrm{.}22$

TOTAL COST OF THE SY$-20($in dollars$)=$ $$367\mathrm{.}82$

Revenue from sale of the SY$-20$

Sale price $($in $$)=$ Price in yen x Direct spot exchange rate $($$$/$yen$)$

Sale price $($in $$)=38,000$ x $0\mathrm{.}00957$

Sale price $($in $$)=$ $$363\mathrm{.}66$

SY$-20$ SALES PRICE $($in dollars$)=$ $$363\mathrm{.}66$

The dollar profit from the sale of the SY$-20$ is simply the sales revenue minus the total cost.

Dollar profit $=$ Sales price $-$ Total cost

Dollar profit $=$ $$363\mathrm{.}66-367\mathrm{.}82$

Dollar profit $=($$$4\mathrm{.}16)$

The percentage profit is determined as the dollar profit divided by the total cost.

$\%$ profit $=$ $ profit $/$ Total cost

$\%$ profit $=($$$4\mathrm{.}16)/367\mathrm{.}82$

$\%$ profit $=-1\mathrm{.}13\%$

In this instance, we observe that a weakening of the dollar against the yen $($all else equal$)$ will result in higher profitability

for Yohe.

e$.$ Using the forward exchange information from Table $3,$ calculate the return on $90-$day securities in England, if the rate of return on $90-$day securities in the U$.$S$.$ is $4\mathrm{.}9\%?$

Applying interest rate parity, we can determine the return on $1-$year securities in England.

TABLE $3$

Forward exchange rates for the British pound

Forward Rates

Spot Rate $30$ days $90$ days $180$ days

British Pound $0\mathrm{.}524400\mathrm{.}52420\mathrm{.}52370\mathrm{.}5231$

Using our knowledge of interest rate parity, the following problem is set up$.$

spot exchange rate $($direct quotation$)=$

forward exchange rate $($direct quotation$)=$

home nominal interest rate $=4\mathrm{.}9\%$

time to maturity on securities $($in years$)=0\mathrm{.}25$

home periodic interest rate $=$

f t $/($spot exchange rate$)=(1+$r h$)/1+$rf

$=/1+$rf

$=1+$rf

$=$ rf periodic

$=$ rf annual

f$.$ Assuming that purchasing power parity holds, what would the sale price of the SY$-20$ be if it were sold in England,

rather than Japan?

Purchasing power parity allows us to establish the following problem.

Price in yen $=$

Exchange rate $($yen$/$pound$)=$

P h $=($ P f $)$ x $($ e$0)$

$=($ P f $)$ x

$($in pounds$)=($ P f $)$