Cross rates, devaluation, cost of intervention and balance of payments | FIN 575 | Colorado State University–Global Campus

 

  1. On July 2, 2012, the cross rates for the Japanese and Mexican currencies were yen 0.009949/EUR and peso 0.059571/EUR. What are the cross rates between the two currencies?
  2. Suppose that on July 2, 2012, the cross rates for the Singapore and South African currencies were Singapore dollar (S$) 0.789085/US dollar (US$) and rand 0.122540/US$. What are the cross rates between the two currencies?
  3. Assume the Bank of Germany borrowed Australian dollar (A$) 25 billion from the Bank of Australia before the global financial crisis of 2007. At that time, the rate was A$ 1.68751/€ or US$1.4786 /€. In 2012, the Bank of Australia repaid the money borrowed. At the time of repayment, the rate was A$1.22829/€ or US$ 1.25929/€:
    1. Calculate the percentage of devaluation of euros against Australian dollars as well as euros against U.S. dollars.
    2. Calculate the cost of intervention to the Bank of Germany in euros and U.S. dollars.
      (Briefly show or explain how you arrived at your solutions to get partial credit if one or more answers are incorrect.)
  4. Record a journal entry for each of the following transactions:
    1. A U.S.-based MNC invests $800 million in a factory located in South Africa and finances the project by issuing bonds in Germany.
    2. A Mexican company sells $5 million worth of goods to an Arizona company and deposits the check in a bank in Scottsdale.
    3. The Bank of Denmark purchases 1.3 billion dollars in the foreign exchange market to hold down the value of the krone and uses these dollars to buy U.S. Treasury bonds.
    4. A U.S.-based MNC pays $9 million in dividends to foreign residents. Those residents decide to hold the dividends in bank deposits in New York.
    5. A U.S. car manufacturer exports $110 million of cars to the Philippines and receives payment in the form of a check drawn on a U.S. bank.
  5. Calculate and record the following entries in the U.S. balance of payments accounts as applicable:
    1. The U.S. government uses its foreign demand deposits to purchase $8 from private foreigners in the U.S.
    2. American tourists spend $30 abroad using traveler’s checks drawn on U.S. banks.
    3. The U.S. government sells abroad $45 in gold for foreign demand deposits.
    4. The U.S. exports $300 of goods and receives payment abroad in the form of foreign demand deposits.
    5. U.S. citizens purchase foreign stocks with $60, using foreign demand deposits held abroad.
    6. The U.S. imports $225 of goods and pays for them by drawing down its foreign demand deposits.
    7. The U.S. pays $15 to foreigners in dividends drawn on U.S. demand deposits.

Your answers must be presented in a Word document; if you do any calculations in Excel, copy and paste them from Excel into the Word document. Make sure your responses are clearly marked so your instructor knows which questions your responses are answering. Written comments must be formatted in conformity with the CSU-Global Guide to Writing and APA Requirements (Links to an external site.).

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