Assume you are a junior member of the IPC (Investment Policy Committee) of a money management firm that manages a large pension fund. 10% of the investments, approximately $100,000,000 are invested in companies that are foreign and operate exclusively in the Eurozone (Those countries that operate as members of the European Union and use the euro as the single currency). The IPC is concerned about the recent instability of the Euro and asks you to work up some recommendations on how to hedge that portion of the portfolio that is exposed to currency and interest rate risks, as well as any other risks you may perceive.

Assume you are a junior member of the IPC (Investment Policy Committee) of a money management firm that manages a large pension fund. 10% of the investments, approximately $100,000,000 are invested in companies that are foreign and operate exclusively in the Eurozone (Those countries that operate as members of the European Union and use the euro as the single currency). The IPC is concerned about the recent instability of the Euro and asks you to work up some recommendations on how to hedge that portion of the portfolio that is exposed to currency and interest rate risks, as well as any other risks you may perceive.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 8Q

See similar textbooks

Similar questions

You have been promoted to head of Treasury and Investment Management at Ecobank and have been handed information on a number of issues for which immediate answers are required. For each excerpt from the issues presented below answer the associated question(s): Ecobank holds ¢500 million T-Bill but is in short of cash. It needs cash to meet the requirement of a customer who has come to withdraw ¢400 million. You have been asked to approach Barclays Bank to sell the T-Bill for ¢495 million with agreement to repurchase within 4 working days. How much in cedis does Ecobank lose in this transaction What is the Repo Rate on this transaction? You have just been offered a commercial paper with a face value of ¢45,000,000 which bears a discount of 36% and has 182 days to mature. How much will you be prepared to pay for this paper? What is the cedi discount on the paper? Ecobank plans to issue a 2-year bond with a face value of ¢500,000,000 bearing 20% coupon rate. The market…
Suppose you work at the FOREX desk of a multinational bank. No particular country is the home country for you as your responsibility is to conduct foreign exchange trade in whichever way is profitable for the bank. Using this as your guideline, consider the following data: S0 = ¥92/US$ S180 = ¥92/US$ IUS = 2% per annum IJapan = 0.09% per annum With a starting amount of US$10 million or its Yen equivalent, can you make a UIA profit? What if a CIA was conducted at F180 of ¥90/US$? What are your observations?
You have been promoted to head of Treasury and Investment Management at Ecobank andhave been handed information on a number of issues for which immediate answers are required.For each excerpt from the issues presented below answer the associated question(s): i) Ecobank holds ¢500 million T-Bill but is in short of cash. It needs cash to meet therequirement of a customer who has come to withdraw ¢400 million. You have beenasked to approach Barclays Bank to sell the T-Bill for ¢495 million with agreementto repurchase within 4 working days.(a) How much in cedis does Ecobank lose in this transaction (b) What is the Repo Rate on this transaction? (ii) You have just been offered a commercial paper with a face value of ¢45,000,000which bears a discount of 36% and has 182 days to mature.(a) How much will you be prepared to pay for this paper? (b) What is the cedi discount on the paper? (iii) Ecobank plans to issue a 2-year bond with a face value of ¢500,000,000 bearing20% coupon rate. The…
a) Mr. Danial wants to diversify his personal investments by investing in Mutual funds. Please explain (3 facts) what are the characteristics of this type of investment. b) Malaysia is one of the leading provider of Islamic banking products globally and its market share is increasing each year. The Islamic Banking products have been used by both the Muslim and non-Muslim customers. Discuss briefly two similarities and three differences between Islamic and Conventional Banking. c) Commercial banks play a key role in financial institutions. Explain the 3 main sources of funds' commercial bank and the 3 main uses of these funds.
6) Suppose that the European central bank increased money supply right after you bought the European financial assets. How that change might affect the expected return you will get at the end of the period as an American investor? (Use graphs)
Assume that you are the senior manager of a leading commercial bank in Oman. You are aware that there are no capital controls in Oman and that Omani Rial is pegged against the dollar. Your past experience tells you that while is some weeks your bank has surplus liquidity, in other weeks there are deficits. You are trying to decide whether to use an Asset Conversion Strategy or a Borrowed Liquidity Strategy in managing your bank's liquidity position. Which of these two strategies, would you prefer and why ?
The Windsor Foundation, a U.S.-based, not-for-profit charitable organization, has a diversified investment portfolio of $100 million. Windsor’s board of directors is considering an initial investment in emerging market equities. Robert Houston, treasurer of the foundation, has made the following comments:a. “For an investor holding only developed market equities, the existence of stable emerging market currencies is one of several preconditions necessary for that investor to realize strong emerging market performance.”b. “Local currency depreciation against the dollar has been a frequent occurrence for U.S. investors in emerging markets. U.S. investors have consistently seen large percentages of their returns erased by currency depreciation. This is true even for long-term investors.”c. “Historically, the addition of emerging market stocks to a U.S. equity portfolio such as the S&P 500 index has reduced volatility; volatility has also been reduced when emerging market stocks are…
As a national of CARICOM, and a student of International Business Management, you have been invited to make a presentation on Foreign Direct Investments to an Investment team. (d) The forces driving FDIs inflows. (e) The influence that FDI’s have on Balance of payments (BOP) statistics and public attitudes. (f) The advantages and disadvantages of FDIs to the host country.
Assess the regulatory environment faced by brokerages and investment banking firms. Do you consider this environment to be highly regulated, moderately regulated or unregulated. Justify your response.Compare and contrast credit risk with liquidity risk.Describe the size, structure and composition of the mutual fund industry. Do you consider these characteristics as having a positive or negative impact on investors ? Why ?An investment bank pays $ 23.00 for 4 million shares of JC Co., and then resells them for $ 25 per share. How much money does JC receive? What is the profit to the investment bank ?An investment bank pays $ 20.50 per share for 3 million shares of X. It then sells these shares to the public for $ 22.50 per share. How much money does X receive ? What is the profit to the investment bank ? What is the stock price of X ?A mutual fund owns 500 shares of X currently trading at $ 12, and 300 shares of Y, currently trading at $ 24. The fund has 900 shares outstanding.What is…
You are a senior financial analyst and have been asked to analyse recent developments in the Euro era and the U.S markets and advise the top management on the economic conditions in both markets. You have collected data on the euro area yields of the central government bonds and the U.S. treasury bond yields. For this purpose, you have downloaded the following data from the European Central Bank and the U.S Federal Reserve Bank on 24th September 2020 (Mo = month, Yr = Year): 24/09/2020 Time to Maturity Euro area Central Government Bond Yield Rates U.S. Treasury Bond Yield Rates 1 Mo - 0.08% 3 Mo -0.60% 0.10% 6 Mo -0.62% 0.11% 1 Yr -0.66% 0.12% 2 Yr -0.71% 0.14% 3 Yr -0.74% 0.16% 4 Yr -0.74% - 5 Yr -0.72% 0.27% 7 Yr -0.63% 0.46% 10 Yr -0.49% 0.67% 20 Yr -0.17% 1.19% 30 Yr -0.05% 1.40% Considering both yield rates on 24th September 2020, depict the yield curves charts and…
You are the governor of the BSP. The newly elected president wants to have a meeting with you together with his economic goals are aligned. Among the agenda is to discuss the continued depreciation of the Philippine peso. Being in charge of the country's monetary policies, use any monetary instruments, to explain to the president how any of the monetary tools can be used to strengthen the local currency. you can use these instruments:1. Bank Rate2. Open Market Operation or;3. Reserve Requirement Ratio
You are a senior financial analyst and have been asked to analyse recent developments in the Euro era and the U.S markets and advise the top management on the economic conditions in both markets. You have collected data on the euro area yields of the central government bonds and the U.S. treasury bond yields. For this purpose, you have downloaded the following data from the European Central Bank and the U.S Federal Reserve Bank on 23rd April 2021 (Mo = month, Yr = Year): 23/04/2021 Euro area Central U.S. Treasury Time to Maturity Government Bond Yield Rates Bond Yield Rates 1 Мо З Мо 6 Мо 1 Yr 2 Y 3 Yr 4 Y 5 Y 7 YL 10 Yr 20 Yr 30 Y -0.50% -0.62% -0.65% -0.70% 0.08% 0.10% 0.11% 0.12% 0.14% -0.74% -0.74% -0.72% -0.63% -0.51% -0.17% -0.05% 0.20% 0.27% 0.46% 0.67% 1.19% 1.40% REQUIRED: a) Considering both yield rates on 23rd April 2021, depict the yield curves charts and describe the implied market outlook in the Euro area and the U.S. market to the top management.