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Please can someone kindly aid me with correct solution. The question ask:

If EUR 100 were used to purchase British Pounds in Year 1, what would be their approximate value if they were kept for a year (assume no interest earned) and then exchanged for HKD?

   Value of 1 Euro (Euro)
                                        Y1      Y2
   British Pound  (GBP) =               1.52    1.62
   Hong Kong dollar (HKD) =             12.3    11.2

   Choices 
   A] HKD 2,626     B] HKD 1,038        C] HKD 937      
   D] HKD 1,667     E] HKD 1,847

1st attempt

    1.52 (Y1 GBP) / 12.3 ( Y1 HKD) = 0.123577235
    0.123577235 * 100 (Euros) = 12.35772358
    12.35772358 / 1.62 (Y2 GBP) = 7.62822443
    7.62822443 * 11.2 (Y2 HKD) = 85.43611362

2nd attempt

    100 (Euros) * 1.52 (Y1 GBP) = 152
    1.52 (Y1 GBP) / 1.62 (Y2 GBP) = 93.82716049
    93.82716049 * 11.2 (Y2 HKD)  = 1050.864198 

3rd attempt

    100 (Euros) / 1.52 (Y1 GBP) = 65.78947368
    65.78947368 * 1.62 (Y2 GBP) = 106.57894747
    106.57894747 * 11.2 (Y2 HKD) = 1193.684211 OR
    106.57894747 / 11.2 (Y2 HKD) = 9.515977444

Thanks in advance for your valueable time in helping me.

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1 Answer

up vote 1 down vote accepted
  1. 100 Euros are equivalent to 152 pounds in Year 1.

  2. In Y2, I exchange them for HKD. Thus, I need the value of 1 GBP in terms of HKD. I know that:

    1 Euro = 1.62 GBP and that 1 Euro = 11.2 HKD

    Assuming no arbitrage opportunity exists between Euro, GBP and HKD, in Y2 1 GBP = 11.2/1.62 HKD = 6.91358 HKD.

    It follows that 152 GBP is equivalent to 1050.864198 HKD. Or to round it off to the nearest 'cent?', we have the answer as: HKD 1050.86. My computation agrees with your second attempt which I believe is the way to go.

It looks as if none of the answers match. So, either the numbers in question are incorrect or the answer choices are incorrect or I am missing something!

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you not missing anything perhaps there is typo error. But thanks for your help. I am sure my attempt is correct because I have used similar equation with different questions So the solution is correct but choices are wrong. I least I was not wrong. –  DiscoDude Nov 23 '11 at 19:00
    
So you should put another choice "T] 1,050.864198" (for tards) in your math book or whereever you got that from ;-) –  draks ... Nov 23 '11 at 19:11
    
those were the only choices available. I don't quite understand what you mean by your comments. Have I upset you? –  DiscoDude Nov 28 '11 at 17:14
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