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Toyota Motor Corp. measures the sensitivity 1. PPP and Economic Exposure. Boulder, Inc., exports chairs to Europe (invoiced in U.S. dollars) and competes against local European companies. If purchasing power parity exists, why would Boulder not benefit from a stronger euro? 2. Measuring Changes in Economic Exposure. Toyota Motor Corp. measures the sensitivity of its exports to the yen exchange rate (relative to the U.S. dollar). Expla ...

Other / Other 13 Apr 2016

Do you think Blades should import components 1. If Blades does not enter into the agreement with the British firm and continues to export to Thailand and import from Thailand and Japan, do you think the increased correlations between the Japanese yen and the Thai baht will increase or decrease Blades’ transaction exposure? 2. Do you think Blades should import components from Japan to reduce its net transaction exposure in t ...

Other / Other 13 Apr 2016

Kopetsky Co. has net receivables in several currencies 1. Factors That Affect a Firm’s Transaction Exposure. What factors affect a firm’s degree of transaction exposure in a particular currency? For each factor, explain the desirable characteristics that would reduce transaction exposure. 2. Currency Correlations. Kopetsky Co. has net receivables in several currencies that are highly correlated with each other. What do ...

Other / Other 13 Apr 2016

The reduction in expected cash flows of Asian subsidiaries 1. Divestiture Strategy. The reduction in expected cash flows of Asian subsidiaries as a result of the Asian crisis likely resulted in a reduced valuation of these subsidiaries from the parent’s perspective. Explain why a U.S.-based MNC might not have sold its Asian subsidiaries. 2. Why a Foreign Acquisition May Backfire. Provide two reasons why an MNC’s strateg ...

Other / Other 13 Apr 2016

Forecasts indicate a relatively stable euro 1. Comparing International Projects. Savannah, Inc., a manufacturer of clothing, wants to increase its market share by acquiring a target producing a popular clothing line in Europe. This clothing line is well established. Forecasts indicate a relatively stable euro over the life of the project. Marquette, Inc., wants to increase its market share in the personal computer market by acquiring a ...

Other / Other 13 Apr 2016

Cash Flow Sensitivity to Exchange Rate 1. Exposure of Net Cash Flows. Each of the following U.S. firms is expected to generate $40 million in net cash flows (after including the estimated cash flows from international sales if there are any) over the next year. Ignore any tax effects. Each firm has the same level of expected earnings. None of the firms have taken any positions in exchange rate derivatives to hedge their exchange rate ...

Other / Other 13 Apr 2016

Would you describe the exposure of the Sports Exports Company 1. Would you describe the exposure of the Sports Exports Company to exchange rate risk as transaction exposure? Economic exposure? Translation exposure? 2. Jim Logan is considering a change in the pricing policy in which the importer must pay in dollars, so that Jim will not have to worry about converting pounds to dollars every month. If implemented, would this policy el ...

Other / Other 13 Apr 2016

Potential Effects if the United Kingdom Adopted the Euro 1. Potential Effects if the United Kingdom Adopted the Euro. The U.K. still has its own currency, the pound. The pound’s interest rate has historically been higher than the euros interest rate. The U.K. has considered adopting the euro as its currency. There have been many arguments about whether it should do so. Use your knowledge and intuition to discuss the likely effe ...

Other / Other 13 Apr 2016

Vegas Corp. is a U.S. firm that exports most of its products 21. Transaction Exposure. Vegas Corp. is a U.S. firm that exports most of its products to Canada. It historically invoiced its products in Canadian dollars to accommodate the importers. However, it was adversely affected when the Canadian dollar weakened against the U.S. dollar. Since Vegas did not hedge, its Canadian dollar receivables were converted into a relatively small am ...

Other / Other 13 Apr 2016

What type(s) of exposure (i.e., transaction, economic, or translation exposure) is Blades 1. What type(s) of exposure (i.e., transaction, economic, or translation exposure) is Blades subject to? Why? 2. Using a spreadsheet, conduct a consolidated net cash flow assessment of Blades, Inc., and estimate the range of net inflows and outflows for Blades for the coming year. Assume that Blades enters into the agreement with Jogs, Ltd. ...

Other / Other 13 Apr 2016