For each of the two years, enter the translated earnings for the German subsidiary (in dollars) in the last column of the table. Period Year 1 Year 2 Local Earnings of German Subsidiary (Euros, Millions) 20 20 Weighted Average Exchange Rate of Translated U.S. Dollar Earnings of German Subsidiary Euro (Dollars, Millions) $1.40 $ $1.20 $ Because of a change in the weighted average exchange rate of the euro, the translated earnings of the German subsidiary, in dollars,
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- Hedging is one strategy or process that is used to of manage both exchange rate and interest rate exposures to MNCs. Owing to the above, American Airlines the entity in which you are the financial advisor is trying to decide how to go about hedging €70 million in ticket sales receivable in180 days. The following exchange /interest rates are available: Spot rate $0.6433-42/€ 180-day forward rate $0.6578-99/€ Euro 180-day interest rate (p.a.) 4.01%-3.97% U.S.$ 180-day interest rate (p.a.) 8.01%-7.98%What is the financial impact on the Airline should they opt to remain in unhedged position.Elaborate more on your answer.A British company that exports shoes to Switzerland wants to exchange the Swiss franc (SF) for British pounds. If the US Dollar Rate of the two currencies is disclosed as follows: £0.5120-0.5130/US$, SF1.1230-1.1240/US$ Calculate and disclose the purchase/sale exchange rate between the two currencies as £/SF by the Cross Rate. If the export price received by a British company is SF10,000, what is the amount of British pound after the exchange?Mary Argent is a foreign exchange trader for a bank in New York. She has Si million (or its Swiss franc equivalent) for a short term money market investment and wonders if she should invest in U.S. dollars for three months, or make a covered interest arbitrage investment in the Swiss franc. She faces the following quotes: $1,000,000 1.2810 Arbitrage funds available Spot exchange rate (SFr./S) 3-month forward rate SFr./$) U.S. dollar 3-month interest rate Swiss franc3-month Interest rate 1.2740 4.800% 3.200% She should Borrow: A 780,600 SF franes (SWISS) B. 1.281.000 USD (US dollars) C. 1.281.000 SF franes (SWISS) D. TBO.000 USD (US dollars)
- (1) Explain the uncovered interest parity condition. (2) Suppose that you have $1 to invest. You have two investment options: one is to buy 1-year U.S. bonds that offer a market interest rate of 8% per year, and the other is to buy 1-year Japanese bonds that pay 12% interest per year. Assume that you decide to buy the Japanese bonds with $1. This time you don't enter into a forward contract to protect your investment from possible fluctuations in the exchange rate. Today's exchange rate is ¥100: $1, and the expected future exchange rate that will prevail one year from today is ¥98: $1. (You can answer this question step by step as follows.) O Calculate the proceeds from investing in the U.S. bonds for one year. ® Calculate the proceeds from investing in the Japanese bonds for one year. ® Convert the yen-denominated proceeds into dollars using the future exchange rate one year later.Markel Corporation is a Pennsylvania-based SME that makes wire and tubing for the automotive and fluid-handling industries. The firm exports to Germany, Spain, Japan, and numerous other countries, generating much of its annual sales from abroad. Suppose Markel sells merchandise to its Spanish importer for €20,000, payable in 60 days. Further suppose that the US dollars strengthens its value against Euro with the exchange rate changing from $1= €1.05 to $1= €1.15 during the 60-day period. Based on the information provided, calculate and answer the following three questions. a) How would the exchange rate fluctuation impact the sales revenue of Markel measured in US dollars? b) How much sales revenue in US dollars would Markel gain or loss as a result? c) What suggestions do you have to help Markel avoid its potential losses resulting from such currency risks?If the direct quote for a U.S. investor for British pounds is $1.43/£, then the indirect quote for the U.S. investor would be ________ and the direct quote for the British investor would be ________. A) £0.699/$; £0.699/$ B) $0.699/£; £0.699/$ C) £1.43/£; £0.699/$ D) £0.699/$; $1.43/£ E) None of the Above
- Elan Pharmaceuticals. Elan Pharmaceuticals, a U.S.-based multinational pharmaceutical company, is evaluating an export sale of its cholesterol-reduction drug with a prospective Indonesian distributor. The purchase would be for 1,680 million Indonesian rupiah (Rp), which at the current spot exchange rate of Rp9,440/$, translates into $177,966.10. Although not a big sale by company standards, company policy dictates that sales must be settled for at least a minimum gross margin, in this case, a cash settlement of $171,000. The current 90-day forward rate is Rp9,940/$. Although this rate appeared unattractive, Elan had to contact several major banks before even finding a forward quote on the rupiah. The consensus of currency forecasters at the moment, however, is that the rupiah will continue to strengthen, possibly rising to Rp10,200/$ over the coming 90 to 120 days. Analyze the prospective sale and make a hedging recommendation. How much in U.S. dollars will Elan receive in 90 days…For your job as the business reporter for a local newspaper, you are given the assignment of putting together a series of articles on multinational finance and the international currency markets for your readers. Much recent local press coverage has been given to losses in the foreign exchange markets by JGAR, a local firm that is the subsidiary of Daedlufetarg, a large German manufacturing firm. Your editor would like you to address several specific questions dealing with multinational finance. Prepare a response to the following memorandum from your editor: TO: Business Reporter FROM: Perry White, Editor, Daily Planet RE: Upcoming series on multinational finance In your upcoming series on multinational finance, I would like to make sure you cover several specific points. In addition, before you begin this assignment, I want to make sure we are all on the same page, as accuracy has always been the cornerstone of the Daily Planet. I’d like a response to the following questions before…For your job as the business reporter for a local newspaper, you are given the assignment of putting together a series of articles on multinational finance and the international currency markets for your readers. Much recent local press coverage has been given to losses in the foreign exchange markets by JGAR, a local firm that is the subsidiary of Daedlufetarg, a large German manufacturing firm. Your editor would like you to address several specific questions dealing with multinational finance. Prepare a response to the following memorandum from your editor: TO: Business Reporter FROM: Perry White, Editor, Daily Planet RE: Upcoming series on multinational finance In your upcoming series on multinational finance, I would like to make sure you cover several specific points. In addition, before you begin this assignment, I want to make sure we are all on the same page, as accuracy has always been the cornerstone of the Daily Planet. I’d like a response to the following questions before…
- S1 Relative PPP: So (2) - (H 1+ Th One of the less restrictive form of the law of one price is known as relative purchasing power parity. Using the equation given in section 6-7b, calculate the expected spot rate for currency B using the relative purchasing power parity with the information provided below: If country A prices are expected to rise by 3.3 percent over the coming year, whereas prices in country B are expected to rise by 2.8 percent, and if the current spot exchange rate is $1.32 of currency A / $1 of currency B, then relative purchasing power parity implies the expected spot rate for the currency B in one year will be:UCCU is an instant coffee manufacturer in the sweet potato country. It imports coffee beans worth $500,000 from abroad and processes them into instant coffee worth 1 million yuan from the freeze-drying plant of the production department, of which $50,000 is sold to Overseas, $300,000 is sold to domestic consumers, and the remaining instant coffee is made into a coffee drink worth 900,000 yuan by a chain coffee shop under the UCCU chain. This chain coffee shop is a contracted manufacturer of the government, of which $100,000 Of the drinks are sold to the national army, and the rest are sold to domestic consumers. (a)Calculated by the expenditure consumption expenditure C is= investment expenditure is= government expenditure= the export is= the import is= and the GDP is= B)added value created by its chain coffee shops is =COVID-19 brought global economic and financial ramifications that were felt through global supply chains, from raw materials to finished products. Some term it as a black swan event that may finally force many companies, and entire industries, to rethink and transform their global supply chain model. If you are the CEO of a U.S. based company which is heavily dependent on foreign locations for sourcing and manufacturing, how would you make short-term and long-term plans to modify your supply chain model? List and discuss the main considerations or factors that will influence your decision.