finance- Suppose that the exchange rate is 0.60 dollars per Swiss franc.

Chapter 17

(17-5) Suppose
that the exchange rate is 0.60 dollars per Swiss franc. If the franc
appreciates 10% against the dollar, how many francs would a dollar buy

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(17-6) Suppose
the exchange rate between U.S. dollars and the Swiss franc is SFr1.6=$1 and the
exchange rate between the dollar and the British pound is €1=$1.50. What then
is the cross rate between francs and pounds?

(17-7) Assume
that interest rate parity holds. In both the spot market and the 90-day forward
market. 1 Japanese yen equals 0.0086 dollar. In Japan, 90-day risk-free
securities yield 4.6%. What is the yield on 90-day risk-free securities in the
United States?

(17-8) In the
spot market, 7.8 pesos can be exchanged for 1 U.S. dollar. A pair of headphones
costs $15 in the United States. If purchasing power parity holds, what should
be the price of the same headphones in Mexico?

Watch Imports has agreed to purchase 15,000 Swiss watches for 1 million francs
at today’s spot rate. The firm’s financial manager, James Desreumaux, has noted
the following current spot and forward rates:

U.S. Dollar/Swiss Franc Swiss Franc/U.S. Dollar


30-day forward
1.6540 0.6046

90-day forward

180-day forward
1.6400 0.6098

On the same day, Desreumaux agrees to purchase 15,000 more
watches in 3 months at the same price of 1 million Swiss Francs.

What is the cost of watches in U.S. dollars, if
purchased at today’s spot rate?

What is the cost in dollars of the second 15,000
batch if payment is made in 90 days and the spot rate at that time equals
today’s 90-day forward rate?

If the exchange rate for is 0.50 Swiss Francs
per dollar in 90 days, how much will Desreumaux have to pay (in dollars) for
the watches?

Chapter 28

(28-1)Define each of the following terms:

a. Baumol model

b. Total carrying cost; total
ordering cost; total inventory costs

c. Economic Ordering Quantity (EOQ);
EOQ model; EOQ range

d. Reorder point; safety stock

e. Red-line method; two-bin method;
computerized inventory control system

f. Just-in-time system; outsourcing

(28-2)Indicate by a (+), (−), or (0) whether each of the following events would
probably causeaverage annual inventory holdings to rise, fall, or be affected
in an indeterminate manner:

a. Our suppliers change from
delivering by train to air freight. __________________

b. We change from producing
just-in-time to meet seasonal

demand to steady, year-round
production. __________________

c. Competition in the markets in
which we sell increases. __________________

d. The general rate of inflation
rises. __________________

e. Interest rates rise; other things
are constant. __________________

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