In thinking about investments, especially capital investments by a firm, the cost of capital and especially the WACC is hugely important. What factors precisely determine the cost of capital for such investments, and what is the relationship between the required rate of return on an investment and is cost of capital? Give exampl
You are the chief financial officer (CFO) of a company that has recently entered the global marketplace. You have been meeting with the marketing and sales managers of the firm, and you are trying to adopt strategies that will minimize foreign exchange risk. The sales and marketing managers are weighing the pros and cons of s
A foreign currency transaction can be denominated in one currency, yet measured in another. Explain the difference between these two terms using the case of a Canadian dollar borrowing on the part of a Mexican affiliate of a U.S. parent company that designates the U.S. dollar as a functional currency.
Managing operating exposure and FX risk at Nissan. Global businesses are often exposed to financial risks such as currency volatility. These foreign exchange (FX) risks affect all aspects of a global firm. Auto makers' operations and manufacturing can be affected by currency fluctuations. In the assigned articles a you will
Differences between buying a call option, selling a call option, buying a put option, and selling a put option.
Mr. Curtis was enlightened by the information you provided but would like to learn if there are alternative methods available for dealing with currency risks. He requests that you research material from the Library and/or the Internet to construct a memo on the differences between buying a call option, selling a call option, buy
Like other companies, Toyota operates in a complex global industry. In order to develop and execute a successful strategy, the Toyota corporation must take into account the global automotive environment. To complete Module 2 Case Assignment, please read the information in the background material, look for more information, an
Se the attached file. 1. (a) A Stock with a beta of .75 now sells for $50. Investors expect the stock to pay a year- end dividend of $2.00. The T-Bill rate is 4%, and the market risk premium is 7%. If the stock is fairly priced, what will be investors expectation of the price of the stock at the end of the year? (b) Suppose
Spartan Inc. is considering the development of a subsidiary in Singapore that could manufacture and sell tennis rackets locally. Various departments of Spartan Inc. were asked to supply relevant information for a capital budgeting analysis. In addition, some executives of Spartan Inc. met with government officials of Singapore r
1. A firm with a corporate-'wide debt/equity ratio of 33%, an afterâ?'tax cost of debt of 7%, and a cost of equity capital of 15% is interested in pursuing a foreign project. The debt capacity of the project is the same as for the company as a whole, but its systematic risk is such that the required return on equity is estimate
Economic and financial factors can affect the value of a country's currency in both the short-term and the long-term. Explain the impact on the currency's value of the following factors: - Macroeconomic - Sociopolitical - Fundamental - Speculative
Cost Of Capital You are in charge of the capital budgeting division of a U.S. diversified multinational firm. The parent company's cost of capital is 16.5 percent, assuming a current borrowing interest rate of 14 percent, a marginal tax rate of 40 percent, and an optimal capital structure of 0.45 debt and 0.55 equity. Y
Question 7: It is generally least difficult to effectively hedge various types of: A) translation exposure. B) transaction exposure. C) economic exposure. D) translation exposure AND economic exposure. Question 11: If a U.S. firmââ?¬â?¢s expenses are less susceptible to exchange rate movements than revenue, the
1. Why are interest rate swaps based upon the principle of comparative advantage? 2. For a swap to provide a real economic benefit to both parties, why must a barrier generally exist to prevent arbitrage from functioning fully?
Translation of financial statements when the local currency is the functional currency. Translation of financial statements when the U.S. dollar is the functional currency.
P1-Translation - Local Currency Is the Functional Currency On January 1, 2008, a U.S. company purchased 100% of the outstanding stock of Ventana Grains, a company located in Latz City, New Zealand. Ventana Grains was organized on January 1, 1994. All the property, plant, and equipment held on January 1, 2008, was acquired
Currency exchange rates are affected by many factors. Determine the effect of the following factors on the rate of currency exchange between 2 countries: Inflation Interest rates Public debt Current account debt Economic performance Political stability
1. Who are the principal users of the forward market? What are their motives? 2. Suppose the euro is quoted at 0.6786-98 in London, and the pound sterling is quoted at 1.4724-70 in Frankfurt. Is there a profitable arbitrage situation? Describe it. 3. On checking the Reuters screen, you see the exchange rate and interest ra
Why doesn't the rational efficient markets paradigm provide a satisfactory explanation for many foreign exchange market anomalies?
See the attachment. 15-6A - Roundtree Company, a U.S. corporation with customers in several foreign countries, had the following selected transactions for 2011 and 2012. 2011 Apr. 8 Sold merchandise to Salina & Sons of Mexico for $7,938 cash. The exchange rate for pesos is $0.1323 on this day. July 21 Sold merchandi
1. What determines the value of the exchange rate? 2. Suppose that there are 10 million workers in Canada and South Korea and each worker in Canada and South Korea can produce 4 cars per year. A Canadian worker can produce 10 tonnes of grain a year, whereas a South Korean worker can produce 5 tonnes of grain a year. The follow
When US$1 can be converted to more than 12.35 Mexican Peso, does that mean the U.S. economy is stronger, more efficient and more productive than the foreign (e.g. Mexican) economy? On the other hand, when 1 Poundsterling can be converted to around US$1.60, does that mean the British economy is stronger than the U.S. economy? Why? Why not?
Please help with the following question. When US$1 can be converted to more than 12.35 Mexican Peso, does that mean the U.S. economy is stronger, more efficient and more productive than the foreign (e.g. Mexican) economy? On the other hand, when 1 Poundsterling can be converted to around US$1.60, does that mean the British e
You are the vice president of a Salmon farming operation in Oregon. Two weeks ago, you received a 5 million Canadian Dollar loan from a bank in Yellow Knife for a new facility in their city. You deposited the loan proceeds in an Oregon bank at the exchange rate of $ 1.10 US per 1 Canadian dollar. Six months from now you will
See attached file. Express Travel owns a travel agency that operates in London. The account balances in pounds for the subsidiary are in the attachment. The subsidiary did not make any purchases of office supplies or plant assets during the year. Revenues were earned and operating expenses, other than depreciation and supp
Current rate method: See attached file. On Jan 1, 2008, Alpha Systems, a US based company, purchased a controlling interest in Norman Management Consultants located in Zurich Switzerland. The acquisition was treated as a purchse transaction. The 2008 financial statements stated in Swiss francs are in the attachment. Obj
2. A U.S. firm sells merchandise today to a British company for £100,000. The current exchange rate is $2.03/£ , the account is payable in three months, and the firm chooses to avoid any hedging techniques designed to reduce or eliminate the risk of changes in the exchange rate. The U.S. firm is at risk today of a loss if
FRA FORWARD RATE AGREEMENTS Explain in detail why a swap is a collection of forward rate agreements (FRAs). Please incorporate two high quality references A swap can generally be termed or defined as any such agreement between two consenting parties (who are also referred to as counterparties) to exchange cash flows sequent
Channel and Pricing Strategies The product that I chose is: Dunkin Donuts Coffee (beverages) Vending Machine Please make sure your work is not plagiarized and quoted. Select a second country as the international market for your product. Your home country was selected in Week Two. Develop channel and pricing strategi
The artificially low value of the Yuan makes US manufactured exports unattractively priced in China. And the undervalued Yuan leads to excessive US imports of Chinese made goods, which in turn, leads to an unwelcome trade balance in China's favor. For example, the trade deficit with China was roughly $20 billion for the month of
Last March, I had lunch at McDonald's in Chengdu, China. I paid 13RMB for a double cheeseburger, fries, and soft drink. The exchange rate was 1 U.S. dollar = 6.818RMB. Did I get a good deal? The current exchange rate is 1 U.S. dollar = 6.46RMB. Has the RMB appreciated or depreciated against the dollar? If the RMB price of my
International Finance Multiple Choice 1. If interest rate parity exists and transactions costs are zero, foreign financing with a simultaneous forward purchase of the currency borrowed will result in an effective financing rate that is: a. Less than the domestic interest rate. b. Greater than the domestic interest rat
Discuss: Some forecasters believe that foreign exchange markets for the major floating currencies are 'efficient' and forward exchange rates are unbiased predictors of future spot exchange rates. What is meant by 'unbiased predictor' in terms of how the forward rate performs in estimating future spot exchange rates?