Purchase Solution

International Finance questions (definitions of theories, Ms. Rosetta Stone, silk scarf importer and more...)

Not what you're looking for?

Ask Custom Question

1. Define each of the following theories in a sentence or simple equation:
a. Interest-rate parity theory
b. Expectations theory of forward rates
c. Law of one price

2. Ms. Rosetta Stone, the treasurer of International Reprints, Inc., has noticed that the interest rate in Switzerland is below the rates in most other countries. She is, therefore, suggesting that the company should make an issue of Swiss franc bonds. What considerations ought she first to take into account?

3. An importer in the United States is due to take delivery of silk scarves from Italy in 6 months. The price is fixed in lire. Which of the following transactions could eliminate the importer's exchange risk?
a. Sell 6-month call options on lire
b. Buy lire forward
c. Sell lire forward
d. Sell lire in currency futures market
e. Borrow lire; buy dollars at the spot exchange rate
f. Sell lire at the spot exchange rate; lend dollars

Purchase this Solution
Solution Summary

The expert defines international finance terms. Interest-rate parity theory, expectations theory of forward rates and the laws of one price are examined.

Solution Preview

International Finance

1. Define each of the following theories in a sentence or simple equation:
a. Interest-rate parity theory
According to interest rate parity theory, the difference in interest rates must equal the difference between the future and current exchange rates.
F0=Forward Price (expressed as Pound per $)
E0=Current Rate
Risk free rate in foreign country = ruk
Risk free rate in domestic country = rus
F0 = E0*(1+r)/(1+rd)

b. Expectations theory of forward rates
According to expectation hypothesis, the Forward price equals the expected value of the future spot price of the asset
F0=E(PT)
Under this ...

Purchase this Solution
Free BrainMass Quizzes
Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Operations Management

This quiz tests a student's knowledge about Operations Management

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

Lean your Process

This quiz will help you understand the basic concepts of Lean.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

View More Free Quizzes
Related BrainMass Solutions

  • Exchange Rate Relationships and Heading Exchange Rate Risk

    50405 International Finance Exchange Rate Relationships. Define each of the following theories in a sentence or simple equation. a. Interest rate parity theory. b. Expectations theory of forward rates. c.

  • Suzie's Silk Scarves

    494986 Suzie's Silk Scarves Suzie's Silk Scarves is a start-up that sells high quality scarves out of a boutique store. The monthly rent of the store is $1,500 and Suzie has one manager who runs the store and earns $3,000 per month.

  • Neolithic Culture

    92828 Neolithic Culture, France, The Rosetta Stone, Homo Sapiens * Neolithic Culture * France * The Rosetta Stone * Homo Sapiens I was asked to choose one from the above list and to answer the following questions: (I chose Neolithic culture).

  • Second languages and oversea assignment for executives

    The technology and tools available today are a great way to learn and translate language. Everything from the Rosetta Stone to google translation can aid in understanding the market and the culture of the global market.

  • International trade, procedures and documentation encountered

    Should government programs used to help finance exports be permissible? International Trade: International trade is the exchange of goods and services among countries globally.

  • International/Regional Financial Institutions

    List, and define, the various methods that can be used to finance global operations, and explain the risks associated with each method. international/regional financial institutions list some international and regional financial institutions that help

  • International Finance

    175248 International Finance - Strategies and Risks Please help with the following problems about international business risk.

  • choices MNEs have for handling international trade payments

    The choice of one of these methods depends on a host of factors, such as level of trust among the exporters and importers, previous transaction relationship and credit history of the importer, size of the transaction, importance of timeframe in receiving

  • International trade guidelines and information

    These trade finance options allows exporters and importer to not only secure necessary financing for carrying out their trade, but also provide security in international trade transactions.

View More Related Solutions