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.
100 Euros are equivalent to 152 pounds in Year 1.
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!