Suppliers of the equipment used to make semiconductors, such as Applied Materials and LAM Research, who produce in the United States but are heavily dependent on sales to Asia, saw their share prices plummet in the wake of the Asian financial crisis. Explain.
Please help with the following problems. Please provide brief explanations. Huaneng Power International is a large Chinese company that runs coal-fired power plants in five provinces and in Shanghai. It has close to $1.2 billion in U.S. dollar debt whose proceeds it has used to purchase equipment abroad. a. What currency
What is the role of finance in protecting against exchange risk?
2. The sharp decline of the U.S. dollar between 1985 and 1995 significantly improved the profitability of U.S. firms both at home and abroad. a. In what sense is this profit improvement false prosperity? b. How would your incorporate the decline in the dollar in evaluating management performance? In making investment decis
16. In 1990, a Japanese investor paid $100 million for an office building in downtown Los Angeles. At the time, the exchange rate was ¥145/$1. When the investor went to sell the building five years later, in early 1995, the exchange rate was ¥85/$1 and the building's value had collapsed to $50 million. a. What exchange risk
13. In 1985, Japan Airlines (JAL) bought $3 billion of foreign exchange contracts at ¥180/$1 over 11 years to hedge its purchases of U.S. aircraft. By 1994, with the yen at about ¥100/$1, JAL had incurred more than $1 billion in cumulative foreign exchange losses on that deal. a. What was the economic rationale behind JAL's
11. Lyle Shipping, a British company, has chartered out ships at fixed-U.S.-dollar freight rates. How can Lyle use financing to hedge against its exposure? How will your recommendation affect Lyle's translation exposure? Lyle uses the current rate method to translate foreign currency assets and liabilities. However, the charters
8. Cost Plus Imports is a West Coast chain specializing in low cost imported goods, principally from Japan. It has to put out its semiannual catalogue with prices that are good for six months. Advise Cost Plus Imports on how it can protect itself against currency risk.
5. In September 1992, Dow Chemical reacted to the currency chaos in Europe by switching to Euro pricing for all its products in Europe. The purpose, said a Dow executive, was to shift currency risk from Dow to its European customers. Moreover, said the Dow executive, the policy was fairer: By setting the same DM price throughout
3. Gizmo, U.S.A. is investigating medium term financing of $10 million in order to build an addition to its factory in Toledo, Ohio. Gizmo's bank has suggested the following alternatives: Type of loan Rate 3-year U.S. dollar loan 14 3-year Euro loan 8 3-year Swiss
The shipbuilding industry is facing a worldwide capacity surplus. Although Japan currently controls about 50% of the world market, it is facing severe competition from the South Koreans. Japanese shipyards are extraordinarily productive, but at current price levels were just about breaking even with an exchange rate of ¥240 = $
15. South Korean companies such as Goldstar, Samsung, and Daewoo have captured more than 10% of the U.S. color TV market with their small, low priced TV sets. They are also becoming more significant exporters of videocassette recorders and small microwave ovens. What currency risk do these firms face?
The Edmonton Oilers (Canada) of the National Hockey League are two time defending Stanley Cup champions. (The Stanley Cup playoff is hockey's equivalent of football's Super Bowl or baseball's World Series.) As is true of all NHL teams, most of the Oilers' players are Canadian. How are the Oilers affected by changes in the Canadi
12. Suppose that on January 1, the cost of borrowing French francs for the year is 18%. During the year, U.S. inflation is 5%, and French inflation is 9%. At the same time, the exchange rate changes from FF 1 = $0.15 on January 1 to FF 1 = $0.10 on December 31. What was the real U.S. dollar cost of borrowing francs for the year?
If expected inflation is 100% and the real required return is 5%, what will the nominal interest rate be according to the Fisher effect?
1. From base price levels of 100 in 1987, West German and U.S. price levels in 1988 stood at 102 and 106, respectively. If the 1987 $/DM exchange rate was $0.54, what should the exchange rate be in 1988? In fact, the exchange rate in 1988 was DM 1 = $0.56. What might account for the discrepancy? (Price levels were measured using
3. In the Kodak Australian dollar swap example, suppose Merrill Lynch had been able to arrange a forward contract for the A $70 million at a rate of A $1 = U.S.$0.49. a. If Merrill Lynch retained full benefits from the better forward rate, what would have been the present value of its profit on the deal? b If Merrill Lynch
2. Square Corp. has not tapped the Swiss-franc public debt market because of concern about a likely appreciation of that currency and only wishes to be a floating-rate dollar borrower, which it can be at LIBOR + 3/8%. Circle Corp. has a strong preference for fixed-rate Swiss-franc debt, but it must pay 1/2 of 1% more than the 5
I need help on Counter trade analysis (a)advantages and disadvantages. (b) Does it still exit?
The Financial Accounting Standards Board has undertaken several key initiatives to pursue the goal of convergence of International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP). Furthermore, the Board conducts several joint projects with the IASB, and works with the IASB on the sho
The Financial Accounting Standards Board has undertaken several key initiatives to pursue the goal of convergence of International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP). Furthermore, the Board conducts several joint projects with the IASB, and works with the IASB on the sho
5. Currency Effects on Cash Flows. How should appreciation of a firm's home currency generally affect its cash inflows? How should depreciation of a firm's home currency generally affect its cash outflows?
Translation Exposure. Consider a period in which the U.S. dollar weakens against the euro. How will this affect the reported earnings of a U.S.-based MNC with European subsidiaries? Consider a period in which the U.S. dollar strengthens against most foreign currencies. How will this affect the reported earnings of a U.S.
18. Currency Diversification. Explain how a firm can use currency diversification to reduce transaction exposure.
5. Exchange Rate Effects on Earnings. Explain how a U.S.- based MNC's consolidated earnings are affected when foreign currencies depreciate.
Suppose the current exchange rate between Germany and Japan is 0.02?/¥. The euro-denominated annual continuously compounded risk-free rate is 4% and the yen-denominated annual continuously compounded risk-free rate is 1%. What are the 6-month euro/yen and yen/euro forwarded prices?
A large increase in the income level in Mexico along with no growth in the U.S. income level is normally expected to cause (assuming everything else remaining constant) a(n) ______ in Mexican demand for U.S. goods, and the Mexican peso should _______. A) increase; appreciate B) increase; depreciate C) decrease; depreciat
Subsidiary A of Mega Corporation has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $.55. What is the net inflow or outflow as measured in U.S. dollars?
Assess the likely consequences of a declining dollar on Fluor Corporation, the international construction-engineering contractor based in Irvine, California. Most of Fluor's value-added involves project design and management; most of its costs are for U.S. labor in design, engineering, and construction-management services. T
34. The U.S. three-month interest rate (unannualized) is 1%. The Canadian three-month interest rate (unannualized) is 4%. Interest rate parity exists. The expected inflation over this period is 5% in the U.S. and 2% in Canada. A call option with a three-month expiration date on Canadian dollars is available for a premium of $.0