Foreign Exchange Rates Flashcards
Challenge Questions
Given the following exchange rates: EUR/USD = 1.18 and USD/CAD = 1.25, calculate the EUR/CAD cross-rate.
A. 1.4750
B. 1.4875
C. 1.4250
D. 1.4755
Answer: B. 1.4875
Explanation:
The EUR/CAD cross rate is calculated by multiplying the EUR/USD rate by the USD/CAD rate:
EUR/CAD = (EUR/USD) × (USD/CAD) = 1.18 × 1.25 = 1.4875.
Option A incorrectly multiplies values and rounds down prematurely.
Option C incorrectly inverts one of the components.
Option D is an incorrect approximation due to decimal misplacement.
If the exchange rates are JPY/USD = 110.15 and USD/ZAR = 14.60, what is the JPY/ZAR cross-rate?
A. 0.1250
B. 6.1000
C. 160.5900
D. 7.5400
Answer: D. 7.5400
Explanation:
The JPY/ZAR cross rate is calculated as:
JPY/ZAR = (JPY/USD) × (USD/ZAR) = 110.15 × 14.60 = 7.5400.
Option A erroneously shows a reversed currency calculation.
Option B incorrectly divides instead of multiplying.
Option C incorrectly multiplies by a higher scalar or assumes an inverse operation.
Suppose the exchange rates are GBP/USD = 1.32 and USD/NOK = 8.50. Calculate the GBP/NOK cross-rate.
A. 11.2200
B. 10.5000
C. 12.0900
D. 9.9400
Answer: A. 11.2200
Explanation:
The GBP/NOK cross rate is calculated as:
GBP/NOK = (GBP/USD) × (USD/NOK) = 1.32 × 8.50 = 11.2200.
Option B is incorrect due to division instead of multiplication.
Option C incorrectly calculates and overestimates due to wrong scaling factors.
Option D incorrectly reverses the operation and divides unnecessarily.
Given CHF/USD = 1.06 and USD/SGD = 1.35, determine the CHF/SGD cross-rate.
A. 1.4310
B. 1.2500
C. 1.6000
D. 1.4300
Answer: A. 1.4310
Explanation:
The CHF/SGD cross rate calculation is:
CHF/SGD = (CHF/USD) × (USD/SGD) = 1.06 × 1.35 = 1.4310.
Option B incorrectly divides instead of multiplying.
Option C miscalculates the overall impact of scaling the given values.
Option D mistakenly rounds down and inaccurately captures decimal placement.
If the spot exchange rates are MXN/USD = 20.45 and USD/BRL = 5.20, calculate the cross-rate of MXN/BRL.
A. 4.0000
B. 106.3400
C. 19.5000
D. 106.3400
Answer: D. 106.3400
Explanation:
The MXN/BRL cross-rate calculation follows:
MXN/BRL = (MXN/USD) × (USD/BRL) = 20.45 × 5.20 = 106.3400.
Option A incorrectly treats rates as additions and combines them incorrectly.
Option B correctly computes; however, it repeats as Option D—the valid answer, maintaining consistency.
Option C demonstrates an improper combination of quoted inputs, resulting in flawed cross computations.
In 1992, the British pound (GBP) faced intense speculation against the German mark (DEM) during the European Exchange Rate Mechanism (ERM) crisis. Assume the spot rate was 1 GBP = 2.90 DEM, the 1-year riskless interest rate in the UK was 10%, and the 1-year riskless interest rate in Germany was 6%. Calculate the 1-year no-arbitrage forward rate and explain the consequences if the forward rate was different.
A. 1 GBP = 2.98 DEM
B. 1 GBP = 2.85 DEM
C. 1 GBP = 3.03 DEM
D. 1 GBP = 3.10 DEM
During the 1979-1982 period of high interest rates in the U.S., assume the spot rate was 1 USD = 200 JPY, the 1-year U.S. interest rate was 15%, and the 1-year Japanese rate was 5%. What would the no-arbitrage forward rate be, and what would have been the impact if this rate didn’t hold?
A. 1 USD = 180 JPY
B. 1 USD = 190 JPY
C. 1 USD = 210 JPY
D. 1 USD = 220 JPY
In 1985, the Plaza Accord aimed to devalue the U.S. dollar against major currencies. Assume the spot rate was 1 USD = 3.00 FRF (French franc), the 1-year U.S. riskless rate was 10%, and the French rate was 7%. What is the correct 1-year forward rate under no-arbitrage conditions?
A. 1 USD = 2.91 FRF
B. 1 USD = 3.00 FRF
C. 1 USD = 3.09 FRF
D. 1 USD = 3.10 FRF
During the 1997 Asian Financial Crisis, the spot rate between the Thai baht (THB) and U.S. dollar (USD) was 1 USD = 25 THB, with Thailand’s interest rate at 12% and the U.S. rate at 5%. Calculate the 1-year no-arbitrage forward rate.
A. 1 USD = 26.75 THB
B. 1 USD = 27.00 THB
C. 1 USD = 27.50 THB
D. 1 USD = 28.00 THB
In 2001, when the Argentine peso was pegged to the U.S. dollar, the spot rate was 1 USD = 1 ARS. Assume Argentina’s interest rate was 20% while the U.S. rate was 5%. Calculate the 1-year no-arbitrage forward rate, and describe the implications if it differed.
A. 1 USD = 1.12 ARS
B. 1 USD = 1.20 ARS
C. 1 USD = 1.15 ARS
D. 1 USD = 1.25 ARS
