According to the question 1FF=0.2030$ and 1DG=0.6194$ three reasons of this interpretion 1) in question it is clearly given that exchange rate of FF and DG. . This sentence exchange rate of that DG and FF are base currency 2) second and mechanical approach what you say a concept is $ is in decimals and not in 1. . Every currency which is not in base 1 is a price currency (clearly it is against DG and FF as given in question ) 3) third one is the best ( for me atleast ) .this is the market parity approach. this question is very old one when all european countries have different currencies and more or less all have less value than $ . Later on all europian countries have a uniform currency euro () which have more value than $ Lets move furthur, given in q 1CAD=3.6347FF ( given in the q that base is CAD. You can understand like this also 3.6347FF/ 1CAD. That is what i write ) Now the requirement of the question is $value of the CAD. It means how many $ for 1 CAD. Given $value of the CAD. mechanically THE says all. It says how many $per FF. another sense os that ki we always measure a commodity at a price. Like value of a pen in rs. Where pen is commodity and price currency is rs. .here also too CAD is commodity ( the base currency ) and $ is price Now ans 1CAD =3.6347FF 1FF= 0.2030$ So 1CAD = 3.6347 *0.2030$ ( this is simlple mathematics now ) Ultimately the ans is 1CAD = 0.7378$

@ amit .....

I agree with the explanation given for the 1st part as everything is correct according to me as well.

 

but in second part  what is the U.S. Doller of the canadian doller ........ ???

explain the logic further........means FRF is called as U.S.Doller in the quote ...... !

Hey I received free talktime for just discussing on forum at www.canewsbeta.com. Why dont you all come there guys.

Hi 

Let me tell u how to calculate cross rate

 

Often one gets confused while calculation of rate whether to take bid rate or ask rate.

 In foreign exchange market always think with selfish motives i.e. give less to other and take more from others. As a banker you will always give less to customer and take more from customer.  As a market taker (user), a customer has to accept the adverse rate given by banker. As an exporter, a customer   will always sell his receivable in foreign currencies, so he has to accept the Bid rate. (Bid rate is the rate at which bank is ready to buy) As a importer, a customer will always buy for his payables in foreign currency so he has to accept Ask rate (Ask rate is the rate at which bank is ready to sell)

In case of cross rates here is some simple method explained with e.g.

1) EUR/INR to be calculated given EUR/USD 1.3200/1.3202 and USD/INR= 49.00/49.02

 EUR is in numerator and INR in denominator so

EUR/INR =  EUR   x    USD   

                     USD          INR

                  =   1.3200 x 49.00   (here the product is multiplication)

                   = 64.68 (Bid rate) the rate given to exporter

 Since a banker will give ex porter the worst rate and what constitute the worst rate?  The bid rate of EUR/USD and Bid rate of USD/INR   and what constitute the worst rate for importer? The Ask rate of EUR/USD and Ask Rate of USD/INR i.e. 1.3202 x 49.02 = 69.72                                                                                                                                                                                                                     

 

2)  JPY/INR   to be calculated given USD/JPY = 81.50/81.52 and USD/INR = 49.00/49.02

 JPY is in numerator and INR in denominator

JPY/INR =  JPY   x   USD    here JPY/USD is reciprocal quote of USD/JPY = 1/ (USD/JPY)

                    USD        INR

                 = 1            .     x   USD

                    (USD/JPY)        INR

 So bid rate      = 1        .   x   49.00   (here the product is division)

                           81.52

                   = 0.6012

Since here the product is division, the worst rate for exporter has to be a lower numerator and higher denominator and the worst rate for importer will be a higher numerator and lower denominator

Thus from the above we can conclude that if the base currency is same in both the pair we need to divide to get the cross rate and if the base currency is different in each pair then we need to multiply to get the cross rate.

 

Regarding your question

it is given 1FF= $0.2030 and  1DG= $ 0.6194 and 1CAD= FF 3.6347

i.e. FF/USD= 0.2030 , DG/USD =0.6194 and CAD/FF = 3.6347,

We require to find out 1CAD = how much USD i.e. CAD/USD

CAD/USD = CAD/FF x FF/USD

                 = 3.6347 x 0.2030

                = 0.7378

 so  US $ value is 0.7378 for 1 CAD

Also u can find out 1 USD = how much CAD

 = 1/0.7378

= 1USD =1.3553 CAD   

The quote of DG is not required in calculation of CAD/USD    

There is no existence of FF amd DG it has been replace by EURO on 1^st jan 1999              

 

@ manoj ....

thanks a lot... you explained it really well. I was being confused by names of CAD  $  and USD  $.

 

@ renu Its simple dear. Its clearly given in the question us dollar value of THE CAD. . Underline the word THE which means for 1 CAD (this is not my way of doing as im not good in english ) . For me its understandable that q wants value of CAD in terms of us dollar. Dont u remember childhood sums where price of one pen is asked in terms of rs. .this is same but you are getting confused because the price and the commodity both are currencies. . And what i understand after 1st reading of question that in first part of question quotes are in given in terms of us dollar. Means q just want a cross rate for a US dollar home currency(for a usa based firm ) And and this is not a conceptual error in rajiv sirs book

every one try to solve this forex question

 

1)     On 1^st Jan 2012 Mr. A asked the Bank for purchase of Demand Bill of US$ 100000. The bank when presented the Bill on 10^th Jan 2012 at New York was not honoured.The advice for non payment was conveyed to Mr. A on 13^th Jan 2012. Mr. A requested the bank

i)                    To recover the bill amount plus Rs. 250 as charges

ii)                   The bill be treated on collection basis and represented for payment.

iii)                 5% rebate to given by Mr. A to overseas Importer.

On 3^rd Feb 2012 the New York Bank recovered the amount of bill and remitted to the Indian bank via swift less charge of US $ 50 with value date 3^rd Feb 2012.

Inter Bank Rates

 1^st Jan     50.1100/1200

 13^th Jan   50.2000/2100

3^rd Feb.    50.0200/0300

Bank charges  1 paise margin on every dollar .Calculate the Total loss on the above transaction also show the loss on exchange and loss on Bank charges and rebate due to dishonor of bill(ignore overdue interest).

 

2)      A pen cost $ 135 in USA and  Eur 100 in Europe. The expected inflation in one year in US is 2% and in Europe 4%. The current rate of interest in Europe is 5% and in US is 3%. If PPP and Fisher effect holds good find the Spot rate of EUR/USD , expected rate of EUR/USD after one year and Real rate of interest in Europe and US.

 

@ manoj Sir ...

zero no by god ... please explain ...I got struck in both question ....

@ amit ....

I didn't said this q is wrong. I already described those q which I find wrong.....

 

and this thing had happened to me during my tax exams in ipcc exams ...n I don't wanna take any risk further.... it's ur wish to continue wid d same book or not...

 

question no 11 is well explained on my facebook wall by others ...u can see it .... everyone can't b wrong.

Renu D& Amit Bro,

I have both Rajiv Singh book with videos & S. D. Bala Sir book.
i actually feel that rajiv singh is good in explanation but he explained the topics more than we need.. as this probs is with rajiv singh. it is actually good when u hv his video n book together otherwise confusion.
S D Bala sir book is very very good from exam oriented.. Presentation, Q nos, and step by step simple to tough side going.

and our forum is here for learning the rules not for debating which author is good.

Now my questions starts here .... Suppose the spot exchange rates of french franc n Dutch guider are $.2030 n   $.6194,respectively.  AND the cross rate b/w french franc n the CAD doller is  3.6347.  frncs to CAD $) what is the US $ value of the CAD doller ? 

1FRF=$.2030

1DG=$.6194

1CAD$=3.6347FRF

1CAD$=USD??

 

@ Renu...The quote of DG to $ seems to be irrelavant in the Question....

 

Anyways ill answer the question based on wat they ve  asked...

 

C      Sell $                        B

u       Buy FRF                  A

s       Sell FRF                 N

t         Buy CAD                 K

o                                        E

m                                       R

e

r

 

Sum up

$/FRF * FRF/CAD=0.2030/1*3.6347/1=0.7378$

 

interpretation of this....which u read  and understand ull rule Forex...

 

u had dollar

sold it to get FRF

Sold FRF 

bought CAD...

 

so how many $ did u spend to buy 1 CAD....

To undersnatd this First u ve to analyse

How much CAD $ ull be buying

Think u wanna buy 1 CAD which costs 3.6347FRF...

but u knw that 1 FRF @ 0.2030$....

 

thus u got to spend 0.7378 $,to get 3.6347 FRF which in turn ull spend to buy 1 CAD $.

 

hope this helps....

 

Hmmm ( kahan pad gaya main ) .. Sorry.. By the way continuing with the same book @ renu

Agree nishant. . . May 13 me forex aur derivatives kam aayenge shayad. . Hai na? kis ne bataya. .

@ Manoj Ji,

waiting for ur explanation.. i tried but pura upar se hi gaya.

please guide.

okay it's what came  to my mind in question no 2 :-

IRPT theory = (1+rh)/ (1+rb) =  F1/F0

= 1.03/1.05 = Forward Rate/1.35

= 1.3242

 

Please rectify me if I am doing wrong ......