Question 1

Look on the Internet (or in the paper) and give the direct and indirect quotes for the Euro, the Japanese Yen, the British Pound, the Swiss Franc, and the Hong Kong Dollar.

Question 2

Question 5 contains all of the following parts:

Microsoft, whose global sales are generally dollar denominated, finds it has excess cash of $750,000,000, which it can invest for up to three years. It has determined that its best options are either a three-year Euro-dollar ($) deposit paying 4.5% or a three-year Euro denominated deposit paying 5.5% since it expects the Euro to depreciate 1% per annum against the dollar over the next three years. Using a cash flow analysis, determine in which currency Microsoft should invest. Be sure to show your complete calculations of the annual return and conversion of Euro back to dollars at the end of the three-year term. Assume that the annual interest amount is reinvested, i.e. compounds, at the same annual interest rates. Would your answer change if Microsoft revised its outlook for the Euro to depreciate 1.25% per year?
British Oxygen, whose global sales are generally dollar denominated, needs to borrow $50,000,000 for working capital and intends to use a 5-year multi-currency revolving credit. It can borrow in US$ at 8.5% p.a. or in SFr at 5.5% p.a. However, it expects the SFr to appreciate on average 4% p.a. over the next five years. Using a cash-flow analysis, determine in which currency BOC should borrow. Would your answer change if BOC could issue SFr commercial paper supported by the revolving credit at 3.5%?