CMA Final · Strategic Financial Management · The International Financial Environment
A Indian firm quotes cross rates: USD/INR 83.00 and EUR/USD 1.10. The implied EUR/INR rate is:
The cross rate is found by multiplying EUR/USD by USD/INR, giving 1.10 x 83.00 = Rs 91.30 per euro. Dividing would give 75.45, which wrongly treats the quotes as having the same base currency.
- ARs 91.30Correct
- BRs 75.45
- CRs 84.10
- DRs 83.00
Explanation
EUR/INR = EUR/USD x USD/INR = 1.10 x 83.00 = 91.30. Dividing instead of multiplying gives 75.45, which is the wrong operation.
Did you get it right without looking?
One question tells you little. A timed set on The International Financial Environment shows your real accuracy, how long you take and where you lose marks.
More The International Financial Environment questions
- Under a floating exchange rate regime, which event would, other things equal, most directly cause the Indian rupee to appreciate against the…
- Under the Bretton Woods system that operated from 1944 until the early 1970s, which arrangement applied to member currencies?
- Expected inflation is 6% in India and 2% in the USA. Spot is Rs 82 per USD. Under relative purchasing power parity, what is the expected spo…
- Indian one-year interest rate is 8% and the US one-year rate is 4%. Spot is Rs 80 per USD. As per interest rate parity, what is the approxim…
- Spot USD/INR is 83.00. India's expected annual inflation is 6% and the US expected annual inflation is 2%. Using relative purchasing power p…
- Spot USD/INR is 83.00 and the one-year forward rate is 84.66. Using the forward premium on the dollar, what is the annualised forward premiu…