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Currency Exchange Scenarios and Calculations

Crystal Gomez bought 100 Pokécoins for 17 Mexican pesos in Mexico City. At the exchange rates provided, the US dollar proceeds of the sale were $0.94 and the Japanese yen proceeds were 94 yen.

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0% found this document useful (0 votes)
79 views1 page

Currency Exchange Scenarios and Calculations

Crystal Gomez bought 100 Pokécoins for 17 Mexican pesos in Mexico City. At the exchange rates provided, the US dollar proceeds of the sale were $0.94 and the Japanese yen proceeds were 94 yen.

Uploaded by

龍徤
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Problem 1.

2 Pokemon Go

Crystal Gomez, who lives in Mexico City (as noted in the Global Finance in Practice 1.2 in the
chapter), bought 100 Pokécoins for 17 Mexican pesos (Ps or MXN). Nintendo of Japan, one of
the part owners of Pokémon Go, will need to convert the Mexican pesos (Ps or MXN) into is
home currency, the Japanese yen, in order to record the financial proceeds. The current spot
exchange rate between the Mexican peso and the U.S. dollar is 18.00 (MXN = 1.00 USD) and
the current spot rate between the dollar and the Japanese yen (¥ or JPY) is 100.00. What are
the yen proceeds of Crystal Gomez's purchase?

a. What are the US dollar proceeds of the sale in Mexican pesos?


b. What are the Japanes yen proceeds of the US dollar proceeds of the sale?

Problem 1.3 Isaac Diez

Isaac Díez Peris lives in Rio de Janeiro. While attending school in Spain he meets Juan Carlos Cordero
from Guatemala. Over the summer holiday Isaac decides to visit Juan Carlos in Guatemala City for a
couple of weeks. Isaac's parents give him some spending money, R$4,500. Isaac wants to exchange
it to Guatemlan quetzals (GTQ). He collects the following rates:

Spot rate on the GTQ/€ cross rate GTQ 10.5799/€


Spot rate on the €/reais cross rate €0.4462/R$

a. What is the Brazilian reais/Guatemalan quetzal cross rate?


b. How many quetzals will Isaac get for his reais?

Problem 1.4 Munich to Moscow

For your post-graduation celebratory trip you decide to travel from Munich, Germany to Moscow,
Russia. You leave Munich with 15,000 euros in your wallet. Wanting to exchange all of these for
Russian rubles, you obtain the following quotes:

Spot rate on the dollar/euro cross rate $1.0644/€


Spot rate on the ruble/dollar cross rate Rbl 59.468/$

a. What is the Russian ruble/euro cross rate?


b. How many rubles will you obtain for your euros?

Common questions

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The cross exchange rate can be calculated by converting reais to euros and then euros to quetzals. Given €0.4462/R$ and GTQ 10.5799/€, the conversion from reais to quetzals is calculated as follows: 1 R$ is equivalent to 1/0.4462 € which equals approximately €2.2419/R$. For euros to quetzals, 1 € = 10.5799 GTQ. Therefore, the cross rate is 2.2419 * 10.5799 = approximately 23.7133 GTQ/R$.

Holding spending money in reais versus converting to quetzals includes evaluating currency stability, inflation rates, and transactional costs. Reais may face domestic economic influences such as Brazil's inflation or political shifts impacting value. Conversely, converting to quetzals might reduce exposure to Brazilian economic risk but invite volatility from Guatemalan fiscal policies or currency fluctuations. Conversion rates, fees, and local purchasing power also factor into deciding which currency optimizes spending power and stability.

First, find the U.S. dollar equivalent of the Mexican pesos. With an exchange rate of 18.00 MXN = 1.00 USD, 17 MXN from the purchase converts to 17/18 = 0.9444 USD. Next, convert the USD amount to Japanese yen. Using the exchange rate of 1 USD = 100 JPY, the USD amount of 0.9444 converts to 0.9444 * 100 = 94.44 JPY. Thus, the yen proceeds of Crystal Gomez's purchase are 94.44 JPY.

Nintendo potentially benefits from revenue streams arising in various currencies due to Pokémon Go's global market presence. This currency diversification can hedge against currency risk by balancing fluctuations across different markets. For instance, revenue in pesos exchanged into yen gives Nintendo a mechanism to mitigate Japanese yen's relative volatility against other global currencies, reinforcing financial stability despite foreign exchange fluctuations.

Cross-rate calculations enable travelers to efficiently convert their currency through intermediaries when no direct conversion exists; they provide insights into real exchange values reflecting broader economic conditions. This is vital as it informs budget planning and enhances financial awareness in diverse economic environments. Through cross rates, travelers can capitalize on arbitrage opportunities, mitigate high direct conversion costs, and adhere to favorable market dynamics, critically impacting travel efficacy and cost management.

Currency conversion through intermediary rates involves multiple steps using given spot exchange rates rather than a single direct rate. It requires knowing multiple currency relationships. For example, converting euros to rubles may require converting euros to dollars first, then dollars to rubles. This method leverages sequential conversions instead of direct conversion which needs a specific cross rate. This method can reveal more favorable rates or reflect economic conditions absent in direct conversions.

The conversion from Mexican pesos to yen involves layering currency conversions via the U.S. dollar. First, the peso's value is translated into U.S. dollars using the given rate of 18 MXN = 1 USD. Once in dollars, this amount is converted to yen at the dollar-yen conversion rate (1 USD = 100 JPY). This sequence of transformations allows Nintendo to practically account for revenue despite cross-currency transactions, minimizing individual currency variations' impact.

To calculate the amount of Guatemalan quetzals Isaac would receive, determine the reais to quetzals cross rate first. With €0.4462/R$ and GTQ 10.5799/€, the cross rate is calculated as approximately 23.7133 GTQ/R$. Isaac starts with R$4,500, thus the calculation is 4,500 * 23.7133 = approximately 106,709.85 quetzals.

Key macroeconomic factors include interest rates, inflation rates, and political stability. High-interest rates can attract foreign capital, triggering currency appreciation, while inflation typically depreciates currency value. Political instability may cause currency depreciation as investors seek safer assets. Additionally, supply and demand dynamics, balance of payments, and government's fiscal policy are influential. Understanding these factors equips individuals and businesses to forecast forex trends, engage in hedging strategies, and optimize international transactions.

To determine the ruble/euro cross rate with intermediaries, first use the given rates: $1.0644/€ for the dollar/euro rate and Rbl 59.468/$ for ruble/dollar. Start by knowing 1 € = 1.0644 USD, and 1 USD = 59.468 Rbl; hence, 59.468 Rbl/USD * 1.0644 USD/€ = 63.2519 Rbl/€. Thus, the cross rate is approximately 63.2519 rubles per euro.

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