5.4 Exchange Rate Refresher Flashcards
A year ago, the exchange rate of the Uruguayan peso (UYU) was 38.11 UYU/USD. Today, the exchange rate is 41.11 UYU/USD.
What is the change in the exchange rate for this period?
The USD has appreciated 7.87%
41.11-38.11/38.11=7.87
The exchange rate of the Uruguayan peso (UYU) is 41.11 today. The Mexican peso is trading at 0.05168 USD/MXN.
What is the cross-exchange rate between the UYU/MXN?
About 2.12 UYU/MXN
An entry-level Huawei phone is advertised for 2900 MXN at the Elektra store in Mexico. The same phone is advertised for 5716 UYU at the Liverpool store in Montevideo, Uruguay. The product warranty is similar in both countries. The product is not sold in the U.S. due to current sanctions. You’re about to travel to Montevideo are not sure whether to purchase it in Mexico or in Montevideo. You plan to pay the phone in USD.
Buy it in Uruguay, since it’s cheaper: about 139 USD vs. 150 USD in Mexico
Which of the following factors may contribute to a depreciation of the Uruguayan peso (UYU) against the U.S. dollar (USD)?
High inflation rates in Uruguay
If you believe the USD will appreciate against the JPY, which of the following strategies could you use to profit from this expectation?
Buy USD/JPY call options
- Buying a call option on USD/JPY gives you the right to buy USD at a specified price before the option expires, profiting if the USD appreciates against the JPY. So, this is also a valid choice.
Buy USD/JPY futures contracts
- Buying futures contracts on USD/JPY means you are agreeing to buy USD at a future date at a predetermined price. If the USD appreciates against the JPY, the value of your futures contract will increase, allowing you to profit.
