Problem Set about Exchange Rate Determination Problem 1 (Exchange Rate Quotations): Today you notice the following exchange rate quotations: SARS/USD = 3.00 and (b) SCAD/ARS = 0.5. You need to purchase CAD 100,000 with USD. How many U.S. dollars will you need for the purchase? Note: In this problem, ARS: Argentinean peso CAD: Canadian dollar USD U.S. dollar Quotes are not even close to current values. . . Problem 2 (Currency Gain): You have sold \104 million at a spot price of 104/$. One year later, you pay dollars to buy back 104 million at the prevailing rate of 100/$. How much have you gained or lost in dollars? Problem 3 (Pricing ADRs): Today the stock of Genovo Co. (based in Switzerland) is priced at CHF 80 per share. The spot rate of the CHF is USD 0.70 (SUSD/CHF = 0.70). During the next year, you expect that the stock price of Genovo Co. will decline 3 percent. You also expect that the Swiss franc will depreciate against the U.S. dollar by 8 percent during the next year. You own American Depositary Receipts (ADRs) that represent Genovo stock. Each share that you own represents one share of the stock traded on the Swiss stock exchange. What is the estimated value of the ADR per share in one year? Problem 3 (Speculation): Blue Demon Bank expects that the Mexican peso (MXN) will depreciate against the U.S. dollar (USD) from its Spot rate of USD 0.15 to USD 0.14 in 10 days. The following interbank lending and annual borrowing rates exists, Currency USD MXN Lending Rate 8.0% 8.5% Borrowing Rate 8.3% 8.7% Assume that Blue Demon Bank has a borrowing capacity of either USD 10,000,000 or MXN 70,000,000 in the Interbank market, depending on which currency it wants to borrow. a) How could Blue Demon Bank attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy. b) Assume all the preceding information with this exception: Blue Demon Bank expects the MXN to appreciate from its present Spot rate of USD 0.15 to USD 0.17 in 39 days. How could it attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy