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

Consider the following international investment opportunity. It involves a gold mine that can be opened at a cost, then produces a positive cash flow, but then requires environmental clean-up. Year 0 + -€64,000 Year 1 Year 2 €160,000 -€100,000 The current exchange rate is $1.60 = €1.00. The inflation rate in the U.S. is 6 percent and in the euro zone 2 percent. The appropriate cost of capital to a U.S.-based firm for a domestic project of this risk is 8 percent. Find the euro-zone cost of capital. Write it down in percent with two decimals places.

Lakonishok Equipment has an investment opportunity in Europe. The project costs €18,406,730 and is expected to produce cash flows of €3,681,369 in Year 1, €4,992,682 in Year 2, and €6,337,782 in Year 3. The current spot exchange rate is $1.23/€ and the current risk-free rate in the United States is 3.71%, compared to that in Europe of 3.03%. The appropriate discount rate for the project is estimated to be 10.55%, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €12,529,609. What is the NPV of the project?

i need help with this problem i know the answer is 5.86 i just need help on how to do it step by step

Lakonishok Equipment has an investment opportunity in Europe. The project costs €20,065,563 and is expected to produce cash flows of €3,524,370 in Year 1, €4,549,121 in Year 2, and €5,590,740 in Year 3. The current spot exchange rate is $1.38/€ and the current risk-free rate in the United States is 3%, compared to that in Europe of 3.08%. The appropriate discount rate for the project is estimated to be 11.07%, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €13,733,917. What is the NPV of the project?

Assume the following information: 90-day U.S. interest rate 90-day Malaysian interest rate 3% 5% 90-day forward rate of Malaysian ringgit Spot rate of Malaysian ringgit $0.394 $0.398 Assume that the Santa Barbara Co. in the United States will need 250,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge. Do not round intermediate calculations. Round your answers to the nearest dollar. The firm will pay out $ in 90 days if it uses the forward hedge and $ if it uses the money market hedge. Thus, it should use the -Select- hedge.

Problem 19-4 (Algo) Required: Suppose a U.S. investor wishes to invest in a British firm currently selling for £33 per share. The investor has $66,000 to invest, and the current exchange rate is $2/£. Consider three possible prices per share at £31, £36, and £41 after 1 year. Also, consider three possible exchange rates at $1.60/£, $2/£, and $2.40/£ after 1 year. Calculate the standard deviation of both the pound- and dollar- denominated rates of return if each of the nine outcomes (three possible prices per share in pounds times three possible exchange rates) is equally likely. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places.) X Answer is complete but not entirely correct. Standard deviation of pound-denominated return Standard deviation of dollar-denominated return 12.37 19.68 %

An international pension fund manager, uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows:       Base price level   100   Current U.S. price level   105   Current South African price level   111   Base rand spot exchange rate $ 0.194   Current rand spot exchange rate $ 0.177   Expected annual U.S. inflation   7 % Expected annual South African inflation   5 % Expected U.S. one-year interest rate   10 % Expected South African one-year interest rate   8 %   Calculate the following exchange rates (ZAR and USD refer to the South African rand and U.S. dollar, respectively):  a. The current ZAR spot rate in USD that would have been forecast by PPP. (Do not round intermediate calculations. Round your answer to 4 decimal places.)     b. Using the IFE, the expected ZAR spot rate in USD one year from now. (Do not round intermediate calculations.…

Lakonishok Equipment has an investment opportunity in Europe. The project costs €14,750,000 and is expected to produce cash flows of €3,350,000 in Year 1, €4,350,000 in Year 2, and €4,750,000 in Year 3. The current spot exchange rate is $.83/€ and the current risk-free rate in the United States is 3 percent, compared to that in euroland of 2.2 percent. The appropriate discount rate for the project is estimated to be 10 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated €9,250,000. What is the NPV of the project in U.S. dollars? (Round 2 decimal places) NPV : S