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Question:

# Which of the following correctly lists the currencies from strongest to weakest based on their performance over the next year? A trader is quoted the following exchange rates:

A JPY, USD, EUR, GBP
explanation

1212Based on the information given, the EUR:USD exchange rate is expected to decline from 1.3754 to 1.3644. This means that EUR is expected to depreciate versus USD.
Further, the GBP:USD exchange rate is expected to decline from 1.5682 to 1.5548. This means that GBP is also expected to depreciate versus USD.
Therefore, we can say that USD is expected to strengthen against both EUR and GBP.
In order to determine which currency is stronger between EUR and GBP, we will need to calculate the spot EUR:GBP cross‐rate as well as the expected EUR‐GBP cross‐rate in one year.
Current EUR‐GBP spot rate =
Expected EUR‐GBP spot rate in one year =
The EUR: GBP exchange rate is expected to increase from 0.8771 to 0.8775. This means that EUR is expected to appreciate against GBP.
The USD:JPY exchange rate is expected to decline from 77.68 to 77.50, which means that USD is expected to depreciate against JPY.
Therefore, the list of currencies from strongest to weakest based on their performance over the next year is: JPY, USD, EUR, GBP