Question 21.A.2: Cross Exchange Rates PROBLEM: An American executive is going...

Fundamentals of Corporate Finance

Cross Exchange Rates
PROBLEM: An American executive is going on a business trip to Japan and England. Before she departs, the executive purchases $10,000 worth of Japanese yen at the prevailing rate of ¥82.54/$. After finishing her business in Japan, she departs for London, where she converts her remaining yen to British pounds. She sells ¥512,375 at a rate of ¥132.03/£. She finally returns to the United States with £567.35, which she would like to convert to U.S. dollars. Based only on the rates given, how many dollars will she receive if she sells the pounds?
APPROACH: In order to solve this problem, you need to know the exchange rate, or cross rate, between the U.S. dollar and the British pound. Given the other two exchange rates, you can calculate this rate by dividing the ¥/£ rate by the ¥/$ rate.

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