Get premium membership and access questions with answers, video lessons as well as revision papers.
1 EUR=1.1 USD
In order to get the % change in the value of the currency –using direct quote;
a) Change in the value = (new exchange rate – beginning rate)/beginning rate.
Therefore; the new exchange rate = ((change in the value * beginning rate) +beginning rate)
New exchange rate= ((0.02*1.1) +1.1) =1.1220
Therefore new exchange rate = EURUSD 1.1220
b) The above means 1EUR=1.1043 USD
And 1GBP=1.2970 USD
Using the indirect quote;
1EUR=1.1043 will be; 1USD=0.9056 EUR
And 1USD=0.7710 GBP
Therefore; 0.7710 GBP = 0.9056 EUR
1 GBP= (0.9056/0.7710)
GBPEUR 1.1746
c) A triangular arbitrage is defined as a trading strategy that exploits the arbitrage opportunity that exists among three currencies in a foreign exchange market due to price discrepancies. The price discrepancies often arise from situations when one market is overvalued while another is undervalued.
For example in part b) above;
Using cross rate formula;
GBPEUR=0.9056*1.2970 =1.1746
The cross rate for the pairs must be equal. In the case above there is no triangular arbitrage. Since the cross rate for the pairs is equal to the value of GBPEUR in b)
If GBPEUR rate is undervalued, that is less than 1.1746 there exists an arbitrage opportunity.
Carolinemakenamutwiri answered the question on February 16, 2019 at 12:40
- Is MNCs Promotion of Globalization Good or Bad?
(Solved)
Is MNCs Promotion of Globalization Good or Bad?
Date posted: February 16, 2019. Answers (1)
- Discuss five different types of elasticity of supply. (Solved)
Different types of elasticity with examples.
Date posted: February 14, 2019. Answers (1)
- Give any three factors that limit the level of liquidity preference(Solved)
Give any three factors that limit the level of liquidity preference
Date posted: January 24, 2019. Answers (1)
- State and explain the branches of economics(Solved)
State and explain the branches of economics.
Date posted: January 21, 2019. Answers (1)
- Explain the ways in which the income elasticity of demand coefficient is interpreted(Solved)
Explain the ways in which the income elasticity of demand coefficient is interpreted
Date posted: January 16, 2019. Answers (1)
- What is income elasticity of demand?(Solved)
What is income elasticity of demand?
Date posted: January 16, 2019. Answers (1)
- Price elasticity of demand coefficient can be interpreted in several ways. Briefly explain them.(Solved)
Price elasticity of demand coefficient can be interpreted in several ways. Briefly explain them.
Date posted: January 16, 2019. Answers (1)
- Differentiate between point and arc elasticity of demand. (Solved)
Differentiate between point and arc elasticity of demand.
Date posted: January 16, 2019. Answers (1)
- What is the usefulness of the concept of elasticity in economics?(Solved)
What is the usefulness of the concept of elasticity in economics?
Date posted: January 16, 2019. Answers (1)
- Highlight and explain the determinants of elasticity of supply(Solved)
Highlight and explain the determinants of elasticity of supply
Date posted: January 16, 2019. Answers (1)
- Highlight the determinants of price elasticity of demand(Solved)
Highlight the determinants of price elasticity of demand
Date posted: January 16, 2019. Answers (1)
- Give the consequences of minimum price policy by the government(Solved)
Give the consequences of minimum price policy by the government
Date posted: January 16, 2019. Answers (1)
- Highlight the consequences of the maximum trade policy by the government.
(Solved)
Highlight the consequences of the maximum trade policy by the government.
Date posted: January 16, 2019. Answers (1)
- Give any conditions for disequilibrium of demand and supply.
(Solved)
Give any conditions for disequilibrium of demand and supply.
Date posted: January 16, 2019. Answers (1)
- What is the equilibrium of supply and demand?(Solved)
What is the equilibrium of supply and demand?
Date posted: January 16, 2019. Answers (1)
- Highlight the characteristics of an oligopolistic market(Solved)
Highlight the characteristics of an oligopolistic market
Date posted: January 16, 2019. Answers (1)
- Examine the impacts of extra regional integration in Africa (Solved)
Prospects of extra regional integration in Africa
Date posted: January 15, 2019. Answers (1)
- Discuss the concept of factor pricing(Solved)
Discuss the concept of factor pricing.
Date posted: December 30, 2018. Answers (1)
- Ways through which the government could influence the allocation of resources in a free market economy(Solved)
Ways through which the government could influence the allocation of resources in a free market economy
Date posted: December 30, 2018. Answers (1)
- Distinguish between general and partial equilibrium.(Solved)
Distinguish between general and partial equilibrium.
Date posted: December 15, 2018. Answers (1)