Introduction to Corporate Finance

PART 5: SPECIAL TOPICS

Country/currency In US$ US$ vs. % chg. Per US$

Fri Thurs 1-day YTD Fri Thurs.

Poland zloty 0.2672 0.2694 0.85 5.7 3.7432 3.7118

Romania leu 0.2497 0.2537 1.60 8.1 4.0053 3.9421

Russia ruble 0.01778 0.01780 0.14 –7.1 56.245 56.165

Sweden krona 0.1193 0.1208 1.26 7.3 8.3807 8.2768

Switzerland franc 0.0643 1.0711 0.64 –5.5 0.9396 0.9336

Turkey lira 0.3756 0.3749 –0.21 14.0 2.6621 2.6677

Ukraine hryvnia 0.0476 0.0475 –0.15 32.9 21.0240 21.0565

UK pound 0.5269 1.5366 0.64 2.0 0.6549 0.6508

Middle East/Africa

Bahrain dollar 0.6522 2.6522 unch. unch. 0.3771 0.3771

Egypt pound 0.1311 0.1310 –0.02 6.7 7.6297 7.6313

Israel shekl 0.2588 0.2609 0.79 –0.8 3.9637 3.8335

Kuwait dinar 0.3091 3.3118 0.08 3.2 0.3022 0.3020

Oman sul rial 0.59717 2.59757 0.02 unch. 0.39 0.38

Qatar rial 0.2747 0.2748 0.02 unch. 3.6405 3.6396

Saudi Arabia riyal 0.2666 0.2667 unch. –0.1 3.7503 3.7502

South Africa rand 0.0796 0.0808 1.51 8.8 12.5689 12.3825

UAE dirham 0.2723 0.2723 unch. unch. 3.6730 3.6729

Source: http://online.wsj.com/mdc/public/page/2_3021-forex.html. Tullett Prebon, Historical data prior to 12/9/14: ICAP plc; historical data prior to 6/9/11, Thomson Reuters.

Table 17.4 shows exchange rate values quoted in the Wall Street Journal for Friday 5 June 2015.^1

Note that the figure states each exchange rate in two ways. The second and third columns show how much

one unit of each foreign currency is worth in terms of US dollars. This type of quote is called a direct quote,

which is simply the domestic cost of one unit of foreign currency. (Note that since we are looking at US

dollar exchange rates, we are assuming the US dollar is the domestic currency.) At the top of the table, for

example, we see that one Argentine peso cost US$0.1107. On the previous day, the Wall Street Journal

reported that one peso cost US$0.1109. Because the value of one peso in terms of US currency fell slightly

from Thursday to Friday, we say that the peso depreciated against the dollar.

The last two columns of Table 17.4 present the same information in a slightly different way. These

columns show the value of each foreign currency relative to one US dollar. That is, the numbers show how

many units of a foreign currency you can buy with US$1. This way of stating exchange rates is called an indirect

quote. Again, in the first row we see that on Friday 5 June 2015, it cost 9.0324 pesos to purchase one US dollar.

On the previous day, one US dollar was worth 9.0195 pesos. Because the value of one US dollar in terms of

pesos rose from Wednesday to Thursday, we say that the US dollar appreciated against the peso. Of course, the

exchange rate quotes in the second and third columns reveal exactly the same information as the quotes in

the last two columns. Each of these methods of quoting exchange rates is simply the reciprocal of the other:

dollars

pesos

1

pesos/dollars

0.1107

1

9.0324

==

1 This data is far more comprehensive, in terms of currency coverage, than RBA data, and provides forward rates, which are also required for

calculations. (The RBA data do not provide this). However, to avoid ambiguity, data taken from this table must be denoted as US$ or USD data

(rather than $ or dollar data).

direct quote
An exchange rate quoted in
terms of units of domestic
currency per unit of foreign
currency

depreciate
A currency depreciates
when it buys less of another
currency than it did previously

indirect quote
An exchange rate quoted in
terms of foreign currency per
unit of domestic currency

appreciate
A currency appreciates when
it buys more of another
currency than it did previously