Currency Exchange Rate

Part 1

Your company is deciding to expand to the following countries, and you and two other managers will have to visit these countries to set up operations. You have $1,500.00 to convert in each currency. Compute the exchange amount for each, and complete the table.

 

Country/Currency USD value for 1 unit of another currency (as of 2/17/16) Exchange amount
Japanese yen $0.008754 Ұ 171,350.34
Euro $1.1159 € 1,344.21
British pound $1.4398 £  £ 1,041.91

 

While you are visiting each of these countries, you have to buy supplies and equipment for your operations. You want to determine what it costs you in U.S. dollars. Utilizing the same exchange rates given above, compute the costs into U.S. dollars, and complete the table:

 

Japanese yen Computer Ұ167,000.00 $ 1,461.82
Euro Desks & chairs €1,125.00 $ 1,255.39
British pound Printer £575.00 $ 827.98

 

Solution:

An exchange rate is referred to as the value of a country’s legal tender versus the legal tender of a different state or commercial region. In this case, there are three types of currencies they include Japanese Yen, the Euro, and the British pound. The significant amount being converted is $1,500.

The exchange amount.

Japanese Yen: $1,500:0.008754 =Ұ 171,350.34

Euro: $1,500:1.1159 = €1,344.21

British Pound: $1500*1.4398 = 1041.81

The costs in the US

Computers: Ұ 167,000:$0.008754 = $1,461.92

Desks & chairs: €1,125.00:$1.1159 = $1,255.39

Printer: £575.00:$1.4398 = $827.39

Part 2

 

Pedro in Costa Rica wants to purchase some wild Atlantic salmon from Hans in Iceland. The fish are purchased in Iceland’s currency, the krona. Pedro’s brother works in a bank and will take care of the transactions free of charge. Pedro has 1,000,000 colons to start with. (There is no transaction fee, and shipping is not calculated at this point.)

How much krona does he have to work with?

Answer:

The first step is converting the 1,000,000 Costa Rican colon to acquire Us Dollars.

Method: 1,000,000: $0.001909

= USD 1,909

The second step is conversion of 1.909 US dollars to Iceland Krona: $1,909*0.00788

=ISK 242,258.89

After conversion, Pedro has 242,258.89

Country/Currency USD $ value for 1 unit of another currency (as of 2/17/16) Euro € value for 1 unit of another currency (as of 2/18)
Costa Rica colon CRC $0.001909 €0.001745
Iceland krona ISK $0.00788 €0.007062

 

The next day Hans decides to purchase some bananas from his new trading partner in Costa Rica. Han’s sister works for an import/export agency and can arrange the transaction in euros with no fee. Hans takes all of the krona he received from Pedro and proceeds to convert his currency to the colon. (Note, one country’s currency experienced some weakness overnight.

How much colon does he have to work with? List your steps and the results you achieved with each step. Also, explain some factors that could cause the country’s currency to weaken.

Answer:

Hans earns ISK 242,258.88 from the sale of Salmon.

The second part: Converting the Iceland Krona to Euros.

ISK 242,258.88*0.007062

=€1,710.83221

 

Third Step: Converting to Costa Rican Colon

€1,710.83* 0.001745= CRC 980,419.60

Factors that lead to the weakening of a Country’s currency

Rate of inflation

According to Lustig Roussanov and Verdelhan (2011), variations in market inflation results in alterations in currency exchange rates. A nation with a lesser rate of inflation than another’s will see an appreciation in the currency value. When inflation is low, the costs of goods and services increases at a slower rate. A nation with a constantly low rate of inflation displays an increasing value of currency. In contrast, a nation with greater inflation characteristically sees devaluation in its legal tender and is frequently supplemented by greater interest rates.

Tariff Rate

This is known as the tax imposed on imported products. The main aim of using tariffs is the restriction of trade, as the price on imported products and services is increased, making it unaffordable for the consumers (Lustig Roussanov & Verdelhan, 2011). Tariffs are a source of revenue for governments as well as domestic production companies at the expense of both clients and the external companies.

Political Stability and Performance

A state’s radical stability and performance may result in the weakening of a country’s currency. A nation that is likely to exhibit a lesser risk of political turmoil is guaranteed more investment opportunities, consequently drawing away investment opportunities from other nations that experience political turmoil. An increase in foreign investment, in turn, results in an appreciation of the domestic currency’s value (Lustig Roussanov & Verdelhan, 2011). A nation with a comprehensive monetary and trade strategy does not provide any room for improbability in the value of its legal tender.

Government Debt

Government debts are considered as a public or national debt owed by the central administration. Governments with high debts are less likely to obtain foreign investments, therefore resulting in inflation. External financiers may opt to trade their bonds in the open market if the market foresees administration debts in a particular republic. Consequently, a diminution in the significance of its exchange rate will ensue.

The economic situation in the country.

The economic situation of a nation is considered the current state of affairs in regards to the economy. The state of the economy is known to change over time while considering the financial and business sequences, as the economy undergoes development and reduction (Lustig Roussanov & Verdelhan, 2011). The state of the economy is believed to be affirmative during the expansion of the economy and is viewed to be undesirable when an economy is astringent. Recession may dwindle the legal tender of a country.

 

 

 

 

 

 

 

 

 

 

 

 

 

References

Lustig, H., Roussanov, N., & Verdelhan, A. (2011). Common risk factors in currency markets. The Review of Financial Studies24(11), 3731-3777.

Friend Essay
Calculate your paper price
Pages (550 words)
Approximate price: -

Why Work with Us

High Quality Essays

FriendEssay helps with essay papers for all levels of academic courses such as high school, undergraduate or graduate level assignments (any subject). The Asssignment writers at Friend Essays have years of experience in helping students write their essays with expertise in various fields like Engineering, Economics, Marketing etc. You can trust our essay writers to take care of your work without any mistakes or plagiarism. Whether you need a simple 5-page essay or an extensive thesis paper on a complex topic - we will do it with professionalism, accuracy, and skill.

Experienced Academic Writers

All of our paper writers are native English speakers with at least three years’ experience in essay writing. They know what they are doing when it comes to essay formatting requirements for the different types of papers; MLA, APA or Harvard formats - we can handle them all without any difficulty whatsoever.

Free Unlimited Revisions

Paper modifications are like a breath of fresh air! If you need any revisions done on your paper, simply click the revision button and we will happily help.

Swift Delivery and 100% Money Back Guarantee

Friend essay is different from other essay writing companies because they are the only company in the world that offers a money back guaranty on any order!

Original and Confidential

We're committed to making sure that all documents we produce for you are 100% original. Not only do our editors check every quotation in a text, but they also promise the utmost confidentiality with each document service.

24/7 Customer Support

The customer support agents at our company are always available to help you. They can be reached 24 hours a day, 7 days a week and will work hard each time they try to get in touch with you so that the experience is as good as it gets.

Try it now!

Calculate the price of your order

Total price:
$0.00

How it works?

Follow these simple steps to get your paper done

Place your order

Fill in the order form and provide all details of your assignment.

Proceed with the payment

Choose the payment system that suits you most.

Receive the final file

Once your paper is ready, we will email it to you.

Our Services

Looking for online essay writer to do an assignment for you? FriendEssay offers a wide range of academic help service such as admission essay writing, research paper help, dissertation writing among others. Simply place an order to get a discount today!

Essays

Homework Help Services

The best part is that we offer essay help on any topic - whether it's literature, history, math or even philosophy! Our specialists know their way around these subjects like no other which means they'll take care of your work as if it were their own and get back to you with quality essays within the time frame specified by our customer service team.

Admissions

Business and Admission Essay

For those seeking professional business writing services such as resume writing, business plan writing, admission essays writing, we are also here for you. We have professionals in distinct business areas who have handled all types of business needs. So, worry no more.

Reviews

Articles and Blog Writing Services

We also specialize in article and blog writing services, so if you're looking to get some content published on the web and need a reliable content writer, simple check the “help with my assignment” service from FriendEssay.com!

Reviews

Editing Support

Whether you need someone who will write an essay from scratch on a topic of your choice or if you want us to edit one already written by yourself, FriendEssay has talented professionals available 24/seven so there's never any essay help delay