20 120 110 Original Operating Structure Cash Flows (Millions of Dollars) 100 90 8 70 0.75 0.80 0.85 0.90 Exchange Rate Scenario (U.S. Dollars per Canadian Dollar) Proposed Operating Structure Because the line for the proposed operating structure is , the U.S. dollar cash flows in the proposed operating structure are sensitive to changes in the exchange rate of the Canadian dollar when compared with the U.S. dollar cash flows of the original operating structure.
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- Match each term in Column A with its related definition in Column B. Column A 1. ____________ Spot rate 2. ____________ Currency appreciation 3. ____________ Translation risk 4. ____________ Transaction risk 5. ____________ Exchange rate Column B a. The rate at which one currency can be traded for another currency. b. The possibility that future cash transactions will be affected by changing exchange rates. c. A month ago, 1 U.S. was worth 8.5 Mexican pesos. Today, 1 is worth 9.0 Mexican pesos. The U.S. dollar has undergone what? d. The degree to which a firms financial statements are exposed to exchange rate fluctuation. e. The exchange rate of one currency for another for immediate delivery (today).International financial management: MCQ If the direct exchange rate of the pound is worth $1.3825, What is the indirect rate of the pound? (a) about 0.7233 US dollars. (b) about 1.3825 pounds. (c) about 0.7233 pounds. (d) about 0.7533 pounds. 2. Assume the Canadian dollar is equal to £0.51 and the Peruvian Sol is equal to £0.16. The value of the Canadian dollars Peruvian Sol is: (a) about 3.1875 Sol (b) about .3137 Sol (c) about 5.7681 Sol3. Determine the value the U.S. based MNC with the following free cash flow and exchange rate estimations. The MNC has operations in Bangladesh and India. Year 1 Year 2 Year 3 Year 4 Year 5Expected Exchange ratesUSD vs INR 50 47 45 42 40USD vs BDT 80 84 88 92 97Expected free cash flows (in millions)India (in INR) 5000 5000 4000 4000 *40000Bangladesh (in BDT) 8000 8000 9000 9000 *80000USA (in USD) 200 200 300 300 *3000The firm has an overall cost of capital of 12%
- Assume the following to be a portion of the simplified balance of payments statement for a hypothetical country. The values are given in billions of dollars. Exports Imports Capital Outflows Capital Inflows $900 - $675 - $225 $135 If the central bank has not changed its holding of foreign-currency reserves during this period, then the capital-service account for this country should be equal to billion.Ch. 31. International Capital Budgeting Using the Foreign Currency Approach. ABC Company is considering a capital project with the cash flows as stated below in Euros. The project is in Euros and must be converted back to USD. The exchange rate is 0.83 Euros. The difference in the nominal rates between the two currencies is 2 percent. The appropriate discount rate for the project is estimated to be 10%, the US cost of capital for the company. What is the NPV of the project in US Dollars? NPV Year Cash Flows in Euro Year 0 € -2,900,000 Year 1 €1,300,000 Year 2 €1,300,000 Year 3 €1,300,000 Round to the nearest cent and format as "XXX,XXX.XX"Finance 3. Triangular Arbitrage. Assume the following information: Value of Canadian dollar in U.S. dollars. Value of New Zealand dollar in U.S. dollars Value of Canadian dollar in New Zealand dollars CAD $0.9 $ $0.3 NZ$ Quoted Price $.90 $.30 NZ$3.02 On the basis of the direct quotations, what is the theoretically implied cross exchange rate CADNZD, that is, NZ$ per CAD, based on the no- arbitrage condition? b) Given the market cross rate of NZ$3.02 per CAD and the theoretically implied cross rate, is triangular arbitrage possible? If so, explain the steps that would reflect triangular arbitrage, and compute the profit from this strategy if you had $1,000,000 to use. c) What market forces would occur to eliminate any further possibilities of triangular arbitrage?
- A U.S. firm holds an asset in France and faces the following scenario: State 1 25% Probability Spot rate. P* P State 2 25% a Exposure b. Variance C. Variance State 3 258 $ 2.20 per euro € 1,500 $ 2,200 In the above table, P is the euro price of the asset held by the U.S. firm and Pis the dollar price of the asset. Required: a. Compute the exchange exposure faced by the U.S. firm. b. What is the variance of the dollar price of this asset if the U.S. firm remains unhedged against this exposure? c. If the U.S. firm hedges against this exposure using a forward contract, what is the variance of the dollar value of the hedged position? $ 2.10 per euro € 1,400 $ 1,940 State 4 25% $ 2.00 per euro € 1,300 $ 1,500 $ 1.90 per euro € 1,200. $ 1,280An investment in China yields these expected after-tax renminbi cash flows (in billions). CF -509 148 309 253 You know the following financial variables Required Return US Required Return China year 0 1 2 UN 3 Expected Inflation US. Expected Inflation China Spot Rate 15.00% 11.745% 6.0% 3.0% $0.14 Assume the international parity conditions hold. Calculate NPV by converting renminbi to dollars at expected future spot rates and discounting in dollars. (X XXX)Percentage Depreciation Inflation Effects on Exchange Rates Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar?
- An investment in China yields these expected after-tax renminbi cash flows (in billions). year CF 0 -495 1 146 2 297 3 246 You know the following financial variables Required Return US -15.00% Required Return China -11.745% Expected Inflation US- 6.0% Expected Inflation China- 3.0% Spot Rate- $ 0.14 Assume the international parity conditions hold. Calculate NPV by converting renminbi to dollars at expected future spot rates and discounting in dollars. (X.XXX) Please answer very soon will give rating surelyAMg eru w Question The economy records the following transactions: . Imports of goods and services: $1569 billion Exports of goods and services: $1152 billion . Interest paid to the rest of the world: $500 billion Interest received from the rest of the world: $400 billion . US official reserves, -$10 billion Net Transfers: -$81 billion Investment in US from foreigners: $1440 . US investment abroad: $860 a. Calculate the Current Account balance, the Financial Account (Capital ACcount) balance: (No Dollar symbols) CA Balance: (hint: answer is negative) FA Balance: b. What is the statistical discrepancy? c. Is this country an 'Importer' or 'Exporter' of goods and services?A U.S. firm holds an asset in France and faces the following scenario: Probability Spot rate P* P State 1 25% State 2 25% State 3 25% $ 1.35 per euro € 1,500 $ 1.25 per euro € 1,400 $ 1.15 per euro € 1,300 $ 1,860 $ 1,600 $ 1,330 State 4 25% $ 1.05 per euro € 1,200 $ 1,110 In the above table, P* is the euro price of the asset held by the U.S. firm and P is the dollar price of the asset. Required: a. Compute the exchange exposure faced by the U.S. firm. b. What is the variance of the dollar price of this asset if the U.S. firm remains unhedged against this exposure? c. If the U.S. firm hedges against this exposure using a forward contract, what is the variance of the dollar value of the hedged position? a. Exposure b. Variance C. Variance