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International Finance

Would you personally invest in El Al Airlines?

International airlines always receive a large portion of their revenues from a variety of different currencies due to their international reach and global range of customers. Furthermore, their risk may depend on political/economic developments in other countries. Furthermore airlines need to purchase oil at world market price

Foreign Exchange Rate & interest rate parity

Should Interest Rate Parity Prevent MNCs from Investing in Foreign Currencies? Point Yes. Currencies with high interest rates have large forward discounts according to interest rate parity. To the extent that the forward rate is a reasonable forecast of the future spot rate, investing in a foreign country is not feasible.

Nominal interest rate on one-year Treasury

According to the international Fisher effect, if U.S. investors expect a 5% rate of domestic inflation over one year, and a 2% rate of inflation in Japan, and require a 3% real return on investments over one year, the nominal interest rate on one-year U.S. Treasury securities would be: A. 2% B. 3% C. -2% D. 5

Covered Interest Arbitrage in Annualized Terms

Mary Joe has a credit line of $1,000,000 (or equivalent in major currencies) for arbitrage. She had access to the following rates, and she managed to generate CIA profits. Replicate her arbitrage and calculate her profits based on the following rates: Assumptions Value SFr. Equivalent Arbitrage funds available $1,000,000 S

Inflation Forecast

Please help with the following problem regarding international finance. Provide step by step calculations in the solution. On August 1st 2009, the USD/SAR exchange rate was SAR9.20 per USD. On August 1st 2010 (1 year later), the USD/SAR rate moved up to USD/SAR9.80. During this period, one year nominal risk free interest rat

Calculating PPP Implied EUR/USD Exchange Rates

Chase Econometrics has just published projected inflation rates for the United States and Euro-zone for the next five years. U.S. inflation is expected to be 2% per year, and Euro-zone inflation is expected to be 3.5% per year. If the current exchange rate is EUR/USD 1.4500, what should the expected PPP implied EUR/USD exchange

Covered Interest Arbitrage Profits

The following interest rate and exchange rates are listed in London: RUS: 4.6%-5.00% REUR: 3.00%-3.4% Spot Rate: EUR/USD 1.2280-1.2295 Forward Rate (1 Year) : EUR/USD 1.2390-1.2410 Assume that you have 10,000,000 EUR or USD 12,280,000 credit line to execute arbitrage. Can you generate covered interest arbitrage profits?

Determining Interest Rate on the Euro

Assume that one year offshore USD and EURO interest rates in London are 4.6%-5.00% and 3.00%-3.4% respectively. A German investor has access to the following spot rates: EUR/USD 1.2280-1.2295 The German investor with EUR 10,000,000 decides to take advantage of dollar interest rates. He/She converts Euros into USD and depo

Making Profit by an Arbitrage Opportunity

Suppose that the current spot exchange rate is USD/SKR6.25 and the three-month forward exchange rate is USD/SKR6.28. The three-month interest rate is 5.6% per annum in the U.S. and 8.8% per annum in Sweden. Assume that you can borrow up US to $1,000,000 or SKR 6,250,000. Can you generate arbitrage profits? Show your profits both

Doing Business in Unstable Countries in the World

What are some of the major political risks associated with investing in a foreign country? How does the threat of global terrorism effect foreign investment and the foreign-exchange market in the world today? In your opinion, what might be done to promote investment in unstable or potentially dangerous areas of the world?

Foreign Financing: Financing in Chile

The new manufacturing facility destined for Chile, for which you deduced an appropriate "discount rate" earlier, has not yet been financed. Management has decided that Chile will indeed be the location of the new facility in spite of the concerns expressed by some on your team. Should your company finance this project via the ca

Calculating MAPE

In Period 1, the predicted value of the Mexican peso was $0.13 and the realized value was $0.14. In period 2, the predicted value was $0.14 and the realized value was $0.12. In period 3, the predicted value was $0.13 and the realized value was $0.15. Calculate the mean absolute forecast error as a percentage of the realized valu

Solving for the Expected Dollar Value

Question: At the end of the year, a U.S. company has expected cash flows of ¥1,000,000 from Japanese operations, CHF200,000 from Swiss operations, and €350,000 euros from German operations. At the end of the year, the yen value is expected to be. $.011; the Swiss franc value is expected to be $1.08, and the euro value is expe

Solving for Profit

- The bid rate of an Australian dollar is $1.055 and the ask rate is $1.065 at Bank 1. The bid rate of the Australian dollar is $1.04 and the ask rate is $1.05 at Bank Y. Calculate your gain if you use $1,000,000 and execute locational arbitrage. Show how you derived your answer. - The spot rate of the British pound is $1.61.

Country Risk Engaged by an MNC

Summarize an article (or series of articles) regarding the country risk engaged by an MNC during the past five years. What key concepts from the assigned reading apply? Examples: 1. Company and political risk 2. Inc. and political risk 3. [MNC] and political risk 4. [MNC] and country risk 5. Exposure to political risk 6

Discount Rate MNC

Please See File The "discount rate" is a key factor to consider when comparing potential projects or investments by the MNC. Assume you are the task manager in charge of assessing the location of a new manufacturing facility to be located in Chile. Your accountants have "crunched the numbers" across a 30 year horizon, but you

Exchange rate stabilization

Please see file: How Can Persistently Weak Currencies Be Stabilized? Currency derivatives, as part of hedging strategies, are an important and complex component of modern currency markets. Many argue that the modern system exhibits efficiency and that the derivative markets merely communicate clear price signals so that ma

Foreign operation's functional currency

Sydney Corporation, an Australian-based multinational, borrowed 10,000,000 euros from a German lender at the beginning of the calendar year when the exchange rate was EUR.60 = AUD1. Before repaying this one-year loan, Sydney Corporation learns that the Australian dollar had depreciated to EUR.55 = AUD1. It also discovers that it

Continued existence of countertrade

How do you explain the continued existence of counter trade? Under what scenarios might its popularity increase still further by the year 2015? Under what scenarios might its popularity decline?

Impact Of China's Growing Economy

China is on track to become the world's largest economy in coming years. Research the implications of this development and draft a document addressing the following: What would be the impact of China's economy on: The world trading system The world monetary system Western-based global corporations How might the concep

Economic Turmoil in Latvia

Please kindly help on the below questions: The case explores how Latvia's economic fortunes have changed since 2004. At the time, the country was enjoying an economic boom, but critics worried that the economy was becoming overheated. By 2008, financial institutions were in trouble, and at least one major company was natio

Liquidity management and corporate investment during a financial crisis

Read the article and answer the questions below: Campello, Murillo, et al. "Liquidity management and corporate investment during a financial crisis." Review of Financial Studies 24.6 (2011): 1944-1979. 1. Explain the purpose of the article and the research method used (2-3 paragraphs) 2. Provide an overview and analysis of

Risks and Opportunities in the International Investments

Risks and Opportunities in the International Investments As we noted, overseas investment, even after some recent chills, remains a hot prospect in the financial community. Investor demand for ways to invest in strongly growing developing markets such as China, Japan, India, and Thailand has led to the creation of several new f

Outcome expectations

Conduct an analysis of a recent article and provide their evaluation and outcome expectations in a written paper of 1500-2500 words that discusses: - A minimum of three general economic principles related to the article - Identification of three to five macroeconomic indices - Definition and explanation of the indices e.g.,

Analysis of Financial Statements and Efficiency

1) Draw a scratch-work Balance Sheet for a company with Assets = 100, and describe the leverage of a company where you decide how much leverage the company has. (For example, 90% borrowing, 10% equity---you choose the leverage.) If your company makes three (dollars) on the assets of 100 ($3 on $100, etc.); and has to pay out

Article Review: New frontiers in International Strategy

Examine the article "New frontiers in international strategy for marketing, production, and finance factors. Describe how the three factors should be incorporated into the situation within the article. Ricart, J.E., Enright, M.J., Ghemawat, P., Hart, S.L. & Khanna, T. (2004). New frontiers in international strategy. Journal o

Discussion: Reserve Currency

Question: The US dollar is the world's reserve currency. China, Russia, and other smaller countries are increasingly voicing a desire for a new currency to replace the US dollar as the world reserve. Why? How would a change in reserve currency impact foreign countries and impact the US?

Discussing Global Currency

Hi, I need some assistance discussing global currency. I am not too sure how to answer these questions. Global Currency: A. Pros and cons of a global currency. B. Why a global currency might or might not be a viable exchange rate arrangement.

Apple: DuPont Framework Ratios and Financial Report Analysis

Use Apple's financial statements to respond to the following questions. 1) Compute the DuPont framework ratios for the years ended 09/26/09 and 09/25/10. Use averages where appropriate. ROE: Profit Margin: Asset Turnover: Financial Leverage: Comment on Apple's's performance for the year ended 09/25/10. H

Hedging Strategies Using Futures and Currency Swaps

See the attached file. The sample period for this project is from 10/10/2012 to 11/13/2012. Case 2. At the start of the sample period, you receive 125,000 Euros, which you plan to sell at the end of sample period. Since the foreign exchange rate fluctuates, the value at the end of the sample period is uncertain. You