Question Details

1.      Spot and Foward Rates [LO1] Suppose the exchange rate for the Swiss franc is quoted as SF 1.50 in the spot market and SF 1.53 in the 90-day foward market.

a. Is the dollar selling at a premium or a discount relative to the frame?

b. Does the financial market expect the franc to strengthen relitive to the dollar?

c. What do you suspect is true about relative economic condintions in the united states and switzerland?

2. Purchasing Power Parity[LO2] Suppose the rate of inflation in Mexico will run about 3 percent higher than the U.S. inflation rate over the next several years. All other things being the same, what will happen to the Mexican preso-U.S. dollar exchange rate? What relationship are you relaying on in answering?

2.      Exchange Rates[LO1] The exchange rate for the Australian dollar is currently A$1.40. This exchange rate is expected to rise by 10 percent over the next year.

a.       Is the Australian dollar expected to get stronger or weaker?

b.      What do you think about the relative inflation rates the United States and Australia?

c.       What do you think about the relative nominal intrest rates in the United States and Australia? Relative real rates?

3.      Yankee Bonds[LO3] Which of the following most accurely describes Yankee bond?

a.       A bond issued by General Motors in japan with the interest payable in yen.

b.      A bond issued by Toyota in the United stateswith the interest payable ye

c.       A bond issued by Toyota in the United States with the interest payable in dollars.

d.      A bond issued by toyota worldwide wiyhe the interest payable in dollars.

5. Exchange Rates[LO1] Are exchange rate changes necessaryily good or bad for a particular company?

6. International Risks[LO4] At one point, Duracell International confirmed that it was planning to open battery-manufacturing plants in China and India. Manufacturing in these countries allows Duracell to avoid import duties of between30 and 35 percent that have made alkaline battires prohibitively expensive for some consumers. What additional advantages might Duracell see in thid proposal? What are some of the risks to Duracell?