1. Hilton International is considering investing in a new Swiss hotel. The required initial investment is $1.5 million (or SFr 2.38 million at the current exchange rate of $0.63 = SFr 1). Profits for the first ten years will be reinvested, at which time Hilton will sell out to its partner. Based on projected earnings, Hilton's s
Define exposure, differentiating between accounting and economic exposure. What role does inflation play?
1. Please answer the following questions. a. Define exposure, differentiating between accounting and economic exposure. What role does inflation play? b. Describe at least three circumstances under which economic exposure is likely to exist. c. Of what relevance are the international Fisher effect and purchasing power p
7. In 1990, General Electric acquired Tungsram Ltd., a Hungarian light bulb manufacturer. Hungary's inflation rate was 28% in 1990 and 35% in 1991, while the forint (Hungary's currency) was devalued 5% and 15%, respectively, during those years. Corresponding inflation for the U.S. was 6.1% in 1990 and 3.1% in 1991. a. What ha
5. On January 1, the U.S. dollar:Japanese yen exchange rate is $1 = ¥250. During the year, U.S. inflation is 4% and Japanese inflation is 2%. On December 31, the exchange rate is $1 = ¥235. What are the likely competitive effects of this exchange rate change on Caterpillar Tractor, the American earth moving manufacturer, whose
15. Suppose today's exchange rate is $0.62/Euro. The 6-month interest rates on dollars and Euro are 6% and 3%, respectively. The 6-month forward rate is $0.6185. A foreign exchange advisory service has predicted that the Euro will appreciate to $0.64 within six months. a. How would you use forward contracts to profit in the a
4. In July, the one year interest rate is 12% on British pounds and 9% on U.S. dollars. a. If the current exchange rate is $1.63:1, what is the expected future exchange rate in one year? b. Suppose a change in expectations regarding future U.S. inflation causes the expected future spot rate to decline to $1.52:£1. What s
Swap Agreement. Grant, Inc. is a well-known U.S. firm that needs to borrow 10 million British pounds to support a new business in the United Kingdom.
Swap Agreement. Grant, Inc. is a well-known U.S. firm that needs to borrow 10 million British pounds to support a new business in the United Kingdom. However, it cannot obtain financing from British banks because it is not yet established within the United Kingdom. It decides to issued dollar-denominated debt (at par value) in t
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
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
8. You are an expatriate working for CommerzBank in Frankfurt West Germany, and observe the following prices. Formulate an arbitrage strategy to profit from the situation. ? Dollar per Euro exchange rate is 1.25 spot and 1.26 for 180-day forward. ? German interest rate is 6.00% compounded daily. ? U.S. stock market index
2. The following prices are observed. - Swiss Franc per Dollar exchange rate is 1.30 spot. - Pound per Dollar exchange rate is .40 spot. - Swiss Franc per Pound exchange rate is 2.60 spot. What strategy could an arbitrageur use to profit from this scenario?
1. Formulate an arbitrage strategy to profit from the situation. - Euro per Dollar exchange rate is 0.75 spot. - Pound per Dollar exchange rate is .60 spot. - Euro per Pound exchange rate is 1.50 spot.
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
Money Exchange - Shown below are exchange rates for several currencies in relation to the U.S. dollar.
Shown below are exchange rates for several currencies in relation to the U.S. dollar. Euro Swiss Franc Mexican Peso Spot rate 0.90 1.70 11.00 30-day forward rate 0.92 1.80 10.95 60-day forward rate 0.93 1.85 10.70 a. Is the euro appreciating or depreciating against the U.S. dollar? Why? b. Is t
If Baylor Bank's forecast is correct, what will its dollar profit be from speculation over the five day period?
Baylor Bank believes the New Zealand dollar will appreciate over the next five days from $.48 to $.50. The following annual interest rates apply: Currency Lending Rate Borrowing Rate Dollars 7.10% 7.50% New Zealand dollar (NZ$) 6.80% 7.25%
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
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
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
How is it possible for PPP to hold if the IFE does not?
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
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.
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%
Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually.
1. Bank USA recently purchased $10 million worth of euro-denominated one-year CDs that pay 10 percent interest annually. The current spot rate was 1.30/$. b. Is Bank USA exposed to an appreciation or depreciation of the dollar relative to the euro? c. What will be the return on the one-year CD if the dollar appreciates relati
We can not forecast the long-range value of one currency in terms of another with great accuracy, but we can often predict the trend.
Can you give me some thoughts/pointers on what this lecture is talking about? ====================================================================== In an earlier note I shared some thought on business in the international environment. An important, and challenging, aspect of that is dealing with multiple currencies and the
Analyze the role of the foreign exchange market in facilitating the global trading positions in India and Japan.
Need help writing a 300 word paper analyzing the role of the foreign exchange market in facilitating the global trading positions in India and Japan.
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
This formatted MS Word file contains examples of foreign currency translations for Brisco Bricks and its foreign supplier, Bolivian Clay.
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
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
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 recognized. Q: The e