Scenario 5—In 2021, The U.S. government sends $100 of stimulus checks to households, which households use to buy stocks and bonds. In 2022, U.S. Metals Inc. imports $50 of iron from England. During this same year, U.S. Metals Inc. uses $40 of iron to produce $80 of steel—$60 sells to government, and $20 is exported to Germany. Refer to Scenario 5 above. What is Investment in 2022? Question 7 options: -$40 $50 $10 None of the above.

Scenario 5—In 2021, The U.S. government sends $100 of stimulus checks to households, which households use to buy stocks and bonds. In 2022, U.S. Metals Inc. imports $50 of iron from England. During this same year, U.S. Metals Inc. uses $40 of iron to produce $80 of steel—$60 sells to government, and $20 is exported to Germany. Refer to Scenario 5 above. What is Investment in 2022? Question 7 options: -$40 $50 $10 None of the above.

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter3: International Financial Markets

Section: Chapter Questions

Problem 2BIC

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3. Suppose that the treasurer of IBM can borrow $100,000,000 or its gbp equivalent, and observes the following quotes: the 120-days interest rate is 8 percent per annum in the United States and 6 percent per annum in United Kingdom. Currently, the spot exchange rate is $1.20 per gbp and the 120-days forward exchange rate is $1.30 per gbp. Treasurer calculates possible future Spot exchange rate (in 120 days) considering PPP with expected inflation rates of 4 percent per annum in the United States and 2 percent per annum in United Kingdom. Calculate (if exists) Covered Interest Arbitrage and Uncovered Interest Arbitrage. Explain differences between CIA and UIA.
It is the year 2021 and Pork Barrels, Inc., is considering construction of a new barrel plant in Spain. The forecasted cash flows in millions of euros are as follows: C0 C1 C2 C3 C4 C5 –95 +25 +35 +38 +42 +40 The spot exchange rate is $1.35 = €1. The interest rate in the United States is 8%, and the euro interest rate is 6%. You can assume that pork barrel production is effectively risk-free. a-1. Calculate the NPV of the euro cash flows from the project. a-2. What is the NPV in dollars? b. What are the dollar cash flows from the project if the company hedges against exchange rate changes?
H3. The Central Bank of the Bahamas pegs the Bahamian Dollar to the United States Dollar at a price of 1 BSD per USD. As an analyst for XYZ Consulting Inc., you have been asked to predict the behavior of key macroeconomic variables in the Bahamas for different policy scenarios. Using all the appropriate diagrams, your analysis must describe the Bahamian money and output markets, as well as the foreign exchange market. To perform this task, you must assume that prices are sticky: fixed in the short-run and flexible in the long-run. The scenarios are: a) A temporary restrictive monetary policy in the Bahamas. b) A temporary restrictive fiscal policy in the Bahamas.
Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The interest rate is 12 percent per annum in the United States and 11 percent per annum in Germany. Currently, the spot exchange rate is €1.05 per dollar and the six-month forward exchange rate is €1.03 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he or she invest to maximize the return?
Example 9-1: Suppose that on March 13, 2020, a U.S. firm plans to purchase 3 million Swiss francs' (Sf) worth of Swiss bonds from a Swiss FI in one month's time. The Swiss FI wants payment in Swiss francs. Believing that the exchange rate of U.S. dollars for Swiss francs will move against it in the next month, the U.S. firm will convert dollars into Swiss francs today. The spot exchange rate for March 13, 2020 (reported in Table 9-1), of U.S. dollars for Swiss francs (or CHF/USD) is 1.0521, or one franc costs 1.0521 in dollars. Consequently, the U.S. firm must convert: One month after the conversion of dollars to Swiss francs, the Swiss bond purchase deal falls through and the U.S. firm no longer needs the Swiss francs it purchased at $1.0521 per franc. The spot exchange rate of the Swiss franc to the dollar has fallen or depreciated over the month so that the value of a franc is worth only $1.0375, or the exchange • What is the initial amount needed in $ for the 3 million francs? •…
Suppose that the treasurer of IBM has an extra cash reserve of $400,000 to invest for six months. The six-month interest rate is 4.3 percent per annum in the United States and 3.2 percent per annum in Germany. Currently, the EUR/USD is 1.2248 and the six-month forward exchange rate is1.2351. The treasurer of IBM does not wish to bear any exchange risk. How much would IBM have if they choose to invest in Europe hedging their risk? (USD, no cents)
Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The six-month interest rate is 12 percent per annum in the United States and 11 percent per annum in Germany. Currently, the spot exchange rate is €1.20 per dollar and the six-month forward exchange rate is €1.18 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should they invest to maximize the return? Required: a. The maturity value in six months if the extra cash reserve is invested in the U.S.: Note: Do not round intermediate calculations. b. The maturity value in six months if the extra cash reserve is invested in Germany: Note: Do not round intermediate calculations. Round off the final answer to nearest whole dollar. c. Where should they invest to maximize the return? a. Maturity value b. Maturity value C. Better investment
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"
Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The six-month interest rate is 8 percent per annum in the United States and 7 percent per annum in Germany. Currently, the spot exchange rate is €1.01 per dollar and the six-month forward exchange rate is €0.99 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he/she invest to maximize the return?
Differentiate between Riba-al-Nasia and Riba-al-Fadl with examples of each. What is the role of Market Practice in Riba? During COVID-19, following economic relief packages were delivered by different states. Ehsaas Emergency Cash program has been launched by the Prime Minister of Pakistan on April 1, 2020. United States issued $1200 checks to Americans. The UK government committed £30 billion to saving jobs and helping the young find work in an economy ravaged by the corona virus pandemic. Do you find any type of Riba involved in any of these packages? If yes, which one? How? (you can explore the details of these packages).
A U.S. company can borrow 10,000 pounds in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. company can borrow an equivalent amount of U.S dollars in the United States and pay 13% interest. Assuming capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero. Select one: a. 7% b. 6.6% C. 6.2% d. 5.4%
A3) Finance Currently, the GBP/USD rate is 1.5050 and the three-month forward exchange rate is 1.5269. The three-month interest rate is 6.2% per annum in the U.S. and 4.1% per annum in the U.K. Assume that you can borrow £1,000,000 or its equivalent in USD. How much do you make/lose if you borrow the local currency and invest abroad? (USD, no cents)