Part 2 TKM0844 11E IM Ch19

Chapter 19
International Business Finance
19-1.

To find the number of dollars that the business needs to pay, we simply need to multiply the foreign currency amounts by the direct quotes. That is:
 $  number of dollars required = (number of foreign currency units required) ∗ 
.
 forex 

Given the direct quotes given, we find:

A

part
(a)
(b)
(c)

B

# of forex units required 10,000
2,000,000
50,000

forex
CD
yen francs C = A*B

($/FC)
# of direct dollars quote required
0.8437
$8,437.00
0.004684 $9,368.00
0.5139 $25,695.00

(We have used the spot quotes in all cases.)
Note that, in all cases, there are fewer dollars than foreign currency units. This is because each unit of these foreign currencies costs us less than $1 (all of the direct quotes are less than 1).
19-2.

Now we need to translate dollars into units of foreign currency. This requires indirect quotes, or units of foreign currency per dollar:
 forex  number of foreign currency required = (number of dollars required) ∗ 
.
 $ 

We can find the necessary indirect quotes simply by taking the inverse of the given direct quotes.
Thus:

part
(a)
(b)
(c)

A

B

C = 1/B

D = A*C

# of dollars required
$10,000
$15,000
$20,000

($/FC) direct quote
0.004684
0.513900
0.8437

(FC/$) indirect quote
213.4927
1.945904
1.185255

# of forex units required 2,134,927
29,189
23,705

forex yen francs
CD

(Again, we have used the spot rates, since the transactions are happening now.)
©2011 Pearson Education, Inc. Publishing as Prentice Hall

458

19-3.

Titman/Keown/Martin

• Financial Management, Eleventh Edition

Here, we repeat what we did in 19-2—turning direct quotes into indirect quotes by inverting—but we do it for all of the given quotes:

(given)
A

CD

yen

franc

19-4.

spot
30
90 spot 30
90
spot
30
90

B = 1/A

$/FC
FC/$
direct quote indirect quote
0.8437
1.1853
0.8417
1.1881
0.8395
1.1912
0.004684
213.4927
0.004717
211.9992
0.004781
209.1613
0.5139
1.9459
0.5169
1.9346
0.5315
1.8815

The dealer makes