# 3) What Can a Firm Do to Manage the Exchange Rate Risk of Foreign Currency Borrowing?

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17. If the spot rate of the Malaysian ringgit is \$.30 and the six month forward rate of the ringgit is \$.32, what is the forward premium or discount on an annual basis? A. premium; about 14.5% B. discount; about 14.5%

Solution: use Equation (5-4) [(.32 - .30)/.30] x (360/180) = 13.3%

18. If the spot rate of the Israel shekel is \$.32 and the six month forward rate is \$.30, what is the forward premium or discount on an annual basis? A. discount; 11.5% B. premium; 11.5% C. premium; 12.5%
* D. discount; 12.5% E. premium; 22.5%

Solution: use Equation (5-4) [(.30 - .32)/.32] x (360/180) = -12.5%
19. If the Canadian dollar is equal to \$.86 and the Brazilian real is equal to \$.28, what is the value of the Brazilian real in terms of Canadian dollars?

Solution: cross rate .28/.86 = .3256

20. If the Japanese yen was worth \$.0035 six months ago and is worth \$.0045 today, how much has the yen appreciated or depreciated?

Solution: use Equation (5-1) (.0045 - .0035)/.0035 = 29%

21. Assume: (1) the US annual interest rate = 10%; (2) the Malaysian annual interest rate = 4%; and (3) the 90-day forward rate for the Malaysian ringgit = \$.3864. At what current spot rate will interest rate parity hold? A. \$.3922 B. \$.3855
* C. \$.3807 D. \$.3752 E. \$.6000

Solution: use Equation (5-8) [(.3864 - S)/S) x (360/90)] = .10 - .04 S =…...

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