The mechanics of exchange rate arithmetic, though fundamentally simple, can be confusing for those not using it on a regular basis. The questions below are designed to provide practice in the more common manipulations. They are of low to moderate difficulty with the easiest problems occurring first. Exhibits 1-3, along with general background information provided in this note, are sufficient to solve the problems 1. Are the dealer quotes shown in Exhibit 1 direct or indirect? If DM1,000,000 were sold spot how many dollars would be received? When would settlement normally take place? 2. Examine the cross-spot rates shown in Exhibit 2. Are there any triangular arbitrage opportunities among these currencies (assume deviations fronm theoretical cross rates of 5 points or less are attributable to transaction costs)? How much profit could be made on a S5 million transaction? 3, What would be the $/SDR bid if the SDR appreciates 15% against the dollar? What would be the SDRS offer rate if the SDR appreciates 15%? 4. Which currencies are at a dollar discount and which are at a dollar premium? What are the outright forward rates for the pound? For the French franc? Usin;g the midpoints of bid-ask spreads, what are the forward premia or discounts on an annualized percentage basis for both these currencies