Suppose you observe the following spot and forward exchange rates between the U.S. dollar ($) and the Canadian dollar (C$):   Spot Exchange Rate One-Year Forward Exchange Rate Canadian dollar (U.S. dollar/Canadian dollar) 0.8932 0.9133   The current one-year interest rate on U.S. Treasury securities is 8.03%. If interest rate parity holds, what is the expected yield on one-year Canadian securities of equal risk? 5.65%

.Explain the relative merits of fixed and floating exchange rate regimes. From the perspective of an international business, what are the most important criteria in a choice between the systems? Which system is the most desirable for an international business?

4. Interest rate parity The rise of globalization is due to the many companies that have become multinational corporations for various reasons-for example, to access better technology, to enter new markets, to obtain more raw materials, to find funding resources, to minimize production costs, or to diversify business risk. This multimarket presence exposes companies to different kinds of risk as well-for example, political risk and exchange rate risk. The relationship between interest rates and exchange rates can be represented through the concept of interest rate parity. Consider the following: An American investor is considering investing $1,000 in default-free 90-day Japanese bonds that promise a 4% annual nominal return. • The spot exchange rate is ¥101.12 per dollar. • The 90-day forward exchange rate is 100.25 per dollar. The investor's annualized return on these bonds-if he or she can lock in the dollar return by selling the foreign currency in the forward market-will be…

Today, the US dollar is the currency of choice in Cross-Border Trade and Investment activities. In this context, what are some of the pros and cons associated with the dollar?If you were the CFO for Global Operations at Lutar International, a Phoenix based multinational company, would you prefer to use a strong or weak dollar in your global operations? Why?

What open market actions would the Fed take to contract the economy?  Explain how this happens?

Leads are deliberate early payments of amounts due to be paid in foreign currency to overseassuppliers, or other foreign currency payments. Leads can avoid the risk that the sterling cost of these payments may rise if the amountsof the payments are quoted in foreign currency and the foreign currencyincreases in value. Under what circumstances can how an international company can use ‘leads and lags’ to protect itself againstforeign exchange risk?

There are both long-term benefits and problems for Euro zone firms in nations using the Euro as their common currency. While such firms will enjoy improved financial planning, using a common currency in business transactions increases exchange-rate risk.TrueFalse

Financial sector plays a crucial role in the accumulation of capital and the production of goods and services. In many developing nations, limited financial markets, instruments, and financial institutions, as well as poorly defined legal systems, may make it costlier to raise capital and may lower the return on savings or investments. They also help to facilitate the international flow of funds between countries. Indian financial market consists of two major segments: (a) Money Market; and (b) Capital Market, While the money market deals in short-term credit , the capital market handles the medium term and long-term credit. The money market is a market for short-term funds, which deals in financial assets whose period of maturity is up to one year. It should be noted that money market does not deal in cash or money as such but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc. These financial…

The foreign subsidiary of a U.S. firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S. dollars. This is an example of which one of the following?  A.  Interest rate disparities   B.  Short-run exposure to exchange rate risk   C.  Long-run exposure to exchange rate risk   D.  Political risk associated with the foreign operations   E.  Translation exposure to exchange rate risk

4. Explain how exchange rates can affect a firm’s global sales.?