Recent Question

Does borrowing a portfolio of currencies offer any possible advantages 1. Financing With a Portfolio. Pepperdine, Inc., considers obtaining 40 percent of its one-year financing in Canadian dollars and 60 percent in Japanese yen. The forecasts of appreciation in the Canadian dollar and Japanese yen for the next year are as follows: Probability Possible Percentage of that Percentage Change in the Spot Change in the Currency Rate Over ...

Other / Other 13 Apr 2016

Trade Deficit Effects on Exchange Rates 1. Interaction of Exchange Rates. Assume that there are substantial capital flows among Canada, the U.S., and Japan. If interest rates in Canada decline to a level below the U.S. interest rate, and inflationary expectations remain unchanged, how could this affect the value of the Canadian dollar against the U.S. dollar? How might this decline in Canada’s interest rates possibly affect the va ...

Other / Other 13 Apr 2016

Jim could also borrow euros at an interest rate that is lower than the U.S. 1. Should Jim borrow dollars or pounds to finance his joint venture business? Why? 2. Jim could also borrow euros at an interest rate that is lower than the U.S. or British rate. The values of the euro and pound tend to move in the same direction against the dollar but not always by the same degree. Would borrowing euros to support the British joint venture r ...

Other / Other 13 Apr 2016

Explain why an MNC parent would consider financing 1. Financing From Subsidiaries. Explain why an MNC parent would consider financing from its subsidiaries. 2. Foreign Financing. a. Explain how a firm’s degree of risk aversion enters into its decision of whether to finance in a foreign currency or a local currency. b. Discuss the use of specifying a break-even point when financing in a foreign currency. Business Manag ...

Other / Other 13 Apr 2016

Diamond Bank considers borrowing 10 million Singapore dollars in the interbank market 1. Aggregate Effects on Exchange Rates. Assume that the United States invests heavily in government and corporate securities of Country K. In addition, residents of Country K invest heavily in the United States. Approxi¬mately $10 billion worth of investment transactions occur between these two countries each year. The total dollar value of trade tra ...

Other / Other 13 Apr 2016

Mexican subsidiary needs a one-year loan of 10 million pesos 1. IRP Application to Short-term Financing. Assume that the U.S. interest rate is 7 percent and the euro’s interest rate is 4 percent. Assume that the euro’s forward rate has a premium of 4 percent. Determine whether the following statement is true: “Interest rate parity does not hold; therefore, U.S. firms could lock in a lower financing cost by borrowing ...

Other / Other 13 Apr 2016

Interest Rate Effects on Exchange Rates 1. Interest Rate Effects on Exchange Rates . Assume U.S. interest rates fall relative to British interest rates. Other things being equal, how should this affect the (a) U.S. demand for British pounds, (b) supply of pounds for sale, and (c) equilibrium value of the pound? 2. Income Effects on Exchange Rates. Assume that the U.S. income level rises at a much higher rate than does the Canadian inc ...

Other / Other 13 Apr 2016

By how much must the euro appreciate to cause the loan 1. IRP Application to Short-term Financing. If interest rate parity does not hold, what strategy should Connecticut Co. consider when it needs short-term financing? a. Assume that Connecticut Co. needs dollars. It borrows euros at a lower interest rate than that for dollars. If interest rate parity exists and if the forward rate of the euro is a reliable predictor of the future sp ...

Other / Other 13 Apr 2016

Analysts commonly attribute the appreciation of a currency 1. National Income Effects. Analysts commonly attribute the appreciation of a currency to expectations that economic conditions will strengthen. Yet, this chapter suggests that when other factors are held constant, increased national income could increase imports and cause the local currency to weaken. In reality, other factors are not constant. What other factor is likely to b ...

Other / Other 13 Apr 2016

Blades plans to remit all baht-denominated cash flows back to the U.S. 1. What is the amount, in baht, that Blades needs to borrow to cover the payments due to the Thai suppliers? What is the amount, in yen, that Blades needs to borrow to cover the payments due to the Thai suppliers? 2. Given that Blades will use the receipts from the receivables in Thailand to repay the loan and that Blades plans to remit all baht-denominated cash ...

Other / Other 13 Apr 2016