Reference no: EM132491213

1.The indirect quotation for the exchange rate between the Japanese yen and the US dollar is currently ¥107.8000/$1.

a. What is the corresponding direct exchange rate (to 6 decimal points) quotation?

b. Assume the exchange rate between the dollar and yen is ¥109.2000/$1 on April 10. Explain whether the yen has appreciated or depreciated against the dollar.

2. On April 2, the exchange rate between the US dollar and the British pound was $1.2409/£1. Shares of British Petroleum (BP) were trading at 353.35 pence (£3.5335) on the London Stock Exchange. Assuming that each British Petroleum ADR (American Depository Receipt) traded on the New York Stock Exchange represents a claim to 6 shares of BP held in a bank trust account, determine the dollar price at which BP must trade on the NYSE to preclude arbitrage between the ADRs traded in New York and the BP stock traded in London.

[Hint: American Depository Receipts are trust receipts representing a claim to shares of a foreign company held in a bank trust account (American Depository Shares), permitting the issuer to avoid disclosure requirements mandated by the Securities and Exchange Commission. The respective prices of an ADR traded in the US and the price of the stock traded in the foreign market "should" satisfy the Purchasing Power Parity relation.]