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Foreign Exchange Rates

Foreign Exchange Markets Summary

Consider the following scenario: You have been asked by a local college to write a lecture that explains the gold standard and addresses the functions of the world's major foreign exchange markets. Write a 1050-to 1400-word summary detailing the functions of the world's major foreign currency exchange markets. Be sure to discuss

Parity Relationships and Arbitrage

9. You are an expatriate working for Bank America in Hong Kong, and observe the following prices. Formulate an arbitrage strategy to profit from the situation. ? Swiss Franc per Dollar exchange rate is 1.30 spot and 1.35 for 180-day forward. ? Swiss interest rate is 6.00% compounded daily. ? U.S. stock market index is 1500

Assessing Economic Exposure

Alaska, Inc., plans to create and finance a subsidiary in Mexico that produces computer components at a low cost and export them to other countries. It has no other international business. The subsidiary will produce computers and export them to Caribbean islands and will invoice the products in US dollars. The value of the curr

Using PPP/IFE to Determine Exchange Rates

An international pension fund manager uses the concepts of purchasing power parity (PPP) and the international fisher effect (IFE) to forecast spot exchange rates. The pension manager gathers the financial information as follows. Base Price Level 100 Current U.S. Price Level 105 Current South African Price Level 111 Base Ran

IFE Application to Asian Crisis

Please help with the following problem. Before the Asian crisis, many investors attempted to capitalize on the high interest rates prevailing in the Southeast Asian countries although the level of interest rates primarily reflected expectations of inflation. Explain why investors behaved in this manner. Why does the IFE s

Inflation and Interest Rate Effects

The opening of Russia's market has resulted in a highly volatile Russian currency (the ruble). Russia's inflation has commonly exceeded 20 percent per month. Russian interest rates commonly exceed 150 percent, but this is sometimes less than the annual inflation rate in Russia. a. Explain why the high Russian inflation has pu

Covered Interest Arbitrage in Both Directions

Covered Interest for New Zealand (NZs) and US dollars. The one-year interest rate in New Zealand is 6%. The one-year interest rate in US is 10% The spot rate of the New Zealand dollar (NZs) is $.50 The forward rate of the New Zealand dollar is $.54 Is covered interest arbitrage feasible for U

Foreign Exchange Derivatives

Managers in multinational corporations use derivatives to hedge their exposure to currency risk. Therefore, they must understand different forms of currency derivatives and how the derivatives markets work. How foreign exchange derivatives markets work. Explain the role of derivatives in hedging the foreign currency risk.

Speculating on Anticipated Exchange Rates

Citi Bank expects that the Singapore dollar will depreciate against the dollar from its spot rate of $.43 to $.42 in 60 days. The following interbank lending and borrowing rates exist: Currency Lending Rate Borrowing Rate US Dollar 7.0% 7.2% Singapore 22.0%

Swenser Corporation - What is the effective interest rate on the foreign loan?

Swenser Corporation arranged a two-year, $1,000,000 loan to fund a foreign project. The loan is denominated in Mexican Pesos, carries a 10% nominal rate, and requires equal semi-annual payments. The exchange rate at the time of the loan was 5.75 pesos per dollar but immediately dropped to 5.10 pesos per dollar before the first

Foreign Currency Transaction

On November 15, 2003, Chow Inc., a U.S. company, ordered merchandise FOB shipping point from a German company for 200,000 euros. The merchandise was shipped and invoiced on December 10, 2003. Chow paid the invoice on January 10, 2004. The spot rates for euros on the respective dates were: November 15, 2003 $.4955 December 10

Triangular Arbitrage Problem

Assume the following information Value of Canadian dollar in U.S. dollars $.90 Value of New Zealand dollar in U.S. dollars $.30 Value of Canadian dollar in New Zealand dollars NZ$3.02 Given this information , is triangular arbitrage possible? If so, explain the steps that would relect triangular arbitrage, and compute t

Financial Statement Reporting and Disclosures

See the attached file. Indicate how each of the following items would be recognized in a company's financial statements for 2007, and what elements would be recognized. If no elements are to be recognized, note this in the answer. For each item, conceptually justify why the elements are to be recognized or why none should be

Euro vs dollar

Explain the exchange rate determination between euro and dollar. Determine money supply between euro and dollar Explain in context appreciation and depreciation for euro and dollar Show graphically.

Exporting and Currency

Why is an exporter that is to be paid in six months in a foreign currency worried about fluctuating foreign exchange rates? Are there ways in which this exporter can protect itself? If so, what are they? How does the credit or money market hedge work? Why is acceleration or delay of payments more useful to an IC than to small

Covered Interest Arbitrage

7. Covered Interest Arbitrage (CIA) 7. Covered Interest Arbitrage (CIA) Given the following: US 90-day interest rate 5% Canadian 90-day interest rate 10% Current Spot Rate $0.8512/C$ 90-day Forward Rate $0.8501/C$ You have $1 Million and would like to engage in CIA: i.) Outline the steps for CIA with the approp

Country Risk Analysis

Please use India to write an initial country risk analysis. Discuss each of the following: a. Economic exposure b. Translation exposure c. Transaction exposure d. Political e. Socio-economic f. Environmental What are some procedures and techniques that can be used to mitigate the risks? U

Fed Rates

The Fed just drop in interest rates in the US. What does this mean to a foreigner holding dollars? I guess another way to look at is what are the implications in terms of foreign exchange rates and capital flows?

Why is an exporter worried about fluctuating foreign exchange rates?

1. Why is an exporter that is to be paid in six months in a foreign currency worried about fluctuating foreign exchange rates? 2. Are there ways in which this exporter can protect itself? If so, what are they? 3. How does the credit or money market hedge work? 4. Why is acceleration or delay of payments more useful to a

Hedging/Mergers/Acquisitions

What factors contribute to the fluctuation of exchange rates? Discuss. What is the best way for a multinational corporation to hedge against foreign currency risk? What are some differences between hedging and forward contracts? What is an example of a recent merger or acquisition in the service industry or western geograp

Business Multiple Choice

1. Which statement best explains the consequences of globalization? a. balance of payments b. creation of supply and demand c. increase in market share d. under the counter trade e. long term cash management 2. Expropriation is taking of fo

Finance Multiple Choice

1. Although quick and easy to apply, the payback method is deficient in that it a. disregards the time value of money b. is based on arithmetic rather than algebra c. disregards cash flows after the payback period d. a and c 2. The cost of particular capital components may be __________ the returns paid to inv