Question

I he tollowing are the toreign currency positions of an H, expressed in the foreign currency Currency Swiss franc (Sf) British pound (6) Japanese yen () Assets Liabilities 51,000 EX Bought FX Sold Sf 127,500 38,168 7,869, 885 Sf Sf 10,200 11, 450 Y1, 259, 181 15,300 15,267 Y9, 233, 998 16,794 Y3,147,954 The exchange rate of dollars for Sf is 1.02, of dollars for British pound is 1.31, and of dollars for yen is 0.00953. The following are the foreign currency positions converted to dollars Currency Swiss franc (Sf) British pound () Japanese yen () ok Assets Liabilities $50,000 $22,001 $30, 000 EX Bought $10,000 $15,000 $12,000 FX Sold $15,000 $20, 000 $88,000 $125, 000 $ 50,000 $ 75,000 -псes a. What is the FI's net exposure in Swiss francs stated in Swiss francs (Sf) and in dollars ($)? b. What is the Fl's net exposure in British pounds stated in British pounds (£) and in dollars ($)? c. What is the Fl's net exposure in Japanese yen stated in Japanese yen () and in dollars (S)? (Negative amounts s by.a minus sign.) d. What is the expected loss or gain if the Sf exchange rate appreciates by 1 percent? e. What is the expected loss or gain if the £ exchange rate appreciates by 1 percent? (Round your answer to the ne amount. (e.g., 32)) f. What is the expected loss or gain if the exchange rate appreciates by 2 percent? (Negative amount should be is minus sign.)

Answer 1

Solution:

a.)

Net exposure in SF = (FX Assets - FX liabilities) +(FX bought - FX sold)

= (127,500 - 1,000) +(10,200 - 15,300)

=126,500 +(-5,100)

=126,500 - 5,100 = 121,400

Net exposure in $ = (FX assets - FX liabilities) +(FX bought - FX Sold)

= (125,000 - 50,000) +(10,000 - 15,000)

=75,000+ ( - 5,000)

= 75,000 - 5,000 = 70,000

b.)

Net exposure in £ = (FX assets - FX liabilities) +(FX bought - FX sold)

= (38,168 - 16,794) + (11,450 - 15,267)

=21,374 + (-3,817)

=21,374 - 3,817 = 17,557

Net exposure in $ = (FX assets - FX liabilities) +(FX bought - FX sold)

=(50,000 - 22,001) +(15,000 - 20,000)

=27,999+(-5000)

=27,999 - 5,000 =22,999

c.)

Net exposure in yen = (FX assets -FX liabilities) +(FX bought - FX sold)

= (7,869,885 - 3,147,954)+(259,181-233,998)

= 4,721,931 +25,183 =747,114

Net exposure in $ = (FX assets - FX liabilities) +(FX bought - FX sold)

=(75,000 - 30,000) +(12,000 -88,000)

=45,000+(-76,000)

=45,000 - 76,000 = - 31,000

d.)

If assets are greater than liabilities, then an appreciation of the foreign exchange rates will generate a gain

= $70,000 × 0.01(1%) =$7,00

e.)

Gain =$22,999 × 0.01(1%) = $229.99 or $230

f.)

Loss = -31,000 × 0.02(2%) = - $620