... Question 1. Why is GM worried about the level of Yen? According to Feldstein, what is the chain of events following a depreciation of the Yen? (He describes a chain of events (7 steps)). General Motors (GM) is worried about the underlying yen fluctuations from a number of different perspectives. A) Investment exposure – GM has a number of equity stakes in several Japanese companies as shown in the table below. As such, these represent net yen exposures. Any depreciation in the yen represents a positive movement (as of the reported figures) for GM as the yen-dominated liabilities currently exceed the yen-dominated assets. As a result, the underlying debt is easier to pay down should the yen depreciate relative to GM’s home currency (i.e. USD). Perhaps on the flip side, another potential concern for GM is the potential dividend or income stream that is paid from these affiliates. Any dividend income that is repatriated back to the U.S. office will be exposed to fluctuations in the yen exchange rates. Affiliate Fuji Isuzu Suzuki Affiliate GM Ownership Long/(Short) Stake -‐1.50 20% -‐1.02 49% -‐0.03 20% B) Commercial exposure – There is currently a forecasted receivables less payables exposure of $900 million. C) Financing exposure – GM has recently completed a bond issue. As such, there is currently an outstanding yen exposure of $500 million. Again the depreciation in the yen represents a positive movement for GM as the liability...
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...This paper aims to compare the Japanese Yen against the US Dollar over a five year period starting from 2005 till 2010. The exchange traded fund for Japanese Yen shall also be discussed in the paper and afterwards an analysis of both the currencies shall be presented. There are different factors that influence the exchange rate differences between any two chosen currencies. The effects produced by these different exchange rates can be of quite different intensity. The most common elements that have an impact on exchange rate difference include economic factors, socio political factors and other behavioral or technical factors also. The macroeconomic factors such as growth of a country, employment rate, gross domestic product etc. All contribute in fluctuation of the country’s currency. (Adam & Vines, 2009) Exchange Traded Fund for Japanese Yen the exchange traded for Japanese Yen is more commonly called the Japan ETFS. These are a kind of exchange traded funds wherein the major assets are invested in equities that are traded on the Japanese stock exchange. The way Japan ETFS perform is dependent on two main factors which are firstly the actual performance of the equities on which investment has been made and secondly the exchange rate difference between the US dollar and the Japanese yen. The management of Japan’s Exchange traded fund is done in a passive way around an index like the MSCI Japan Index. Japan’s main stock exchange is the Tokyo stock exchange which is considered...
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...Aditya Bansal HW 2 Chap 5 Q1.Assume the spot rate of the British pound is $1.73. The expected spot rate one year from now is assumed to be $1.66. What percentage depreciation does this reflect? ANSWER ($1.66 – $1.73)/$1.73 = –4.05% Therefore the Expected depreciation is 4.05 percent Q2.Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar? ANSWER: If U.S inflation rate becomes high relative to Canadian dollars then the demand for Canadian dollars should increase, supply of Canadian dollars for sale should decrease, and the Canadian dollar’s value should increase. Q3. Assume U.S. interest rates fall relative to British interest rates. Other things being equal, how should this affect the (a) U.S. demand for British pounds, (b) supply of pounds for sale, and (c) equilibrium value of the pound? ANSWER: If U.S interest rates fall relative to British interest rate then the demand for pounds should increase, supply of pounds for sale should decrease, and the pound’s value should increase. Q4. Assume that the U.S. income level rises at a much higher rate than does the Canadian income level. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value...
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...FLUCTUATIONS IN INDIAN CURRENCY AND ITS IMPACTS SUBMITTED TO: Professor Harshit Shah SUBMITTED BY: Amber A Maheshwari (NR12070) SUBMITTED ON: 19th September 2013 INTRODUCTION TO EXCHANGE RATE MECHANISM: All economies that interact with international economy can be broadly classified into three categories on the basis of exchange rate policy of the country. 1) FIXED EXCHANGE RATE: These economies peg the value of their currency with some other prominent currency like US dollar. This system is simple and provides stability to the economy (of course, if the economy of the country to whose currency its currency is pegged is stable). This type of exchange rate regime is maintained by generally smaller economies like Nepal and Bhutan (pegged to Indian Rupee) or several African nations. Rational behind such regime is that in case of small economy – if the exchange rate is market determined – the sudden influx or out flux of even relatively small amount of foreign capital will have large impact on exchange rate and cause instability to its economy. Notable exception is China which despite being large economy has its currency pegged to US dollar. 2) FLOATING (OR FREE) EXCHANGE RATE: Bigger and developed economies like US, UK, Japan etc generally let market determine their exchange rate. In such economy exchange rate is determined by demand and supply of the currency. For example consider exchange rate of US dollar versus Japanese Yen. If US wants to import certain item...
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...CAPITAL BUDGETING ANALYSIS REPORT TO LAM REGARDING POTENTIAL INVESTMENT OPPORTUNITY APARTMENT COMPLEX 830 S. Westlake Avenue Los Angeles CA 90057 Presented by: GRETA BANYTE April 14th, 2010 Well maintained apartment building, built in 1964, located at 830 S. Westlake Avenue, in Los Angeles, is listed at the price of $5,700,000. The building is close to the 10, 110 and 101 freeways, as well as it is 1 mile from Mid Wilshire, 1.2 miles from Downtown, 2.6 miles from Dodger Stadium, and 7.5 miles from Hollywood. The size of the lot is 30,013 square foot. This 34,722 square foot apartment building includes 60 units: • 4 bachelor units, • 25 singles, and • 31 one bedroom, one bathroom (1+1) units. Most of the units feature laminate wood flooring and balconies. Recently remodeled units include new tile floors in the bathrooms and kitchen, as well as tiled countertops. There is also on-site laundry and parking with 60 available spaces. Currently the price of the rent is: • $460-$700 for “Bachelor unit” for a total of $2,384 for 4 units per month • $523-$850 for “Single” for a total of $18,617 for 25 units per month • $560-$1000 for “1+1” for a total of $24,463 for 31 units per month Current Annual Operating Data: Percentage of Gross Income Gross Income $553,980 $545,580 from rent and $8,400 from laundry Vacancy Rate Reserve ($16,367) 3% Gross Operating Income $537,613 Expenses: ($206,116) 37.2%...
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...Japan exports a lot of automobiles because it is one of the leading countries in the production of automobiles that are spread all over the world. Moreover, Japan is the largest creditor nation while running an annual trade surplus. The GDP per capita increased from $29369.49 in 2004 to $31425.49 in 2013 (Trading Economics, 2013) meaning that the economy is vigorous since people are earning more so they have more disposable income to spend which vitalities the economy and the services thus leading the economy to thrive. All these conditions led the growth rare to increase from 0.1% in 2004 to 0.3% in 2013 (Trading Economics), however it is still considered low since it only increase 0.2%. In general we can come to a conclusion that the Japanese economy is healthy and is experiencing a positive growth. Since we already know that the economy in Japan is booming it would be rational to say that there are new opportunities for new positions in the market, the demand for workers will increase which is typical in an expanding economy. When there are more people working, more people are paying taxes to the government and when people work more the purchasing ability increases so we there will be an increase in the consumption, because of that the unemployment rate will decrease and that’s exactly what is happening in Japan. Japan had experienced a drop in the...
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...to trade against US dollar includes Euro, Japanese Yen and Pound Sterling. The reason I chose Japanese yen to trade in is due to the drop in Asian stocks that signals the global economic recovery is slowing down. When the global economic recovery is slowing down, investors and traders will option for safer assets and currency (Associated Source, 2012). Throughout the years, yen is stable and it is bought by investors who wants to reduce currency risk. Moreover, there has been an appreciation of euro against dollar due to the news that European Central Bank announcement that it will keep its benchmark interest rate at 1% and it is raising the inflation projection. Moreover, the private bondholders are expected to agree to Greek debt swaps that should keep the country from a hard default. Another reason for the selection of euro is the latest decision by the Bank of England not to increase the bond purchases as bond purchases means outflow of money that leads to trade deficit and depreciation of Euro (TopForexNews.com, 2012). Furthermore, the reason I chose Great Britain pound was due to the appreciation of UK pound against the US dollar based on the latest interest rate decision by the Bank of England to keep it the same as well as to keep its debt-purchase program on hold for the time being (TopForexNews.com, 2012 ). Discussion 14 March 2012 For the first week of trading, I am only allowed to buy the currencies. The Japanese yen is expected to fall when the European finance...
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...A N N U A L R E PO RT 2 0 0 8 Message from the President Throughout its history in the home entertainment arena, Nintendo has created unique hardware and software as one integrated entertainment product, with software being the primary driver. Nintendo has focused its basic strategy on expanding the worldwide gaming audience. To achieve this, Nintendo is encouraging as many people as possible around the world, through its unique hardware and software offerings, to experience and enjoy video game entertainment, regardless of their age, gender, language, cultural background or gaming experience. Nintendo’s first hardware launch in support of the basic strategy “Gaming Population Expansion“ was a hand-held device, Nintendo DS, which allows users to play intuitively. To drive this platform, Nintendo introduced a new software lineup, Touch! Generations, which expands the definition of video games and appeals not only to traditional gamers but also to inexperienced gamers. In the future, Nintendo plans to leverage various uses of the Nintendo DS system, such as playing in public places, and to take advantage of the high market penetration of the device. Nintendo took another step toward expanding the worldwide gaming population by launching an unprecedented video game console called Wii. Since its launch, Wii has been changing the definition of the home video game console significantly. Nintendo has been making efforts to promote Wii by developing compelling software which...
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...Currency devaluation is evaluated in terms of the foreign exchange rate. Exchange rate is the value between two currencies shows how much one currency is worth in terms of other currency. The depth and intensity of exchange rate volatility and its impact on the volume of international trade was recognized during 1970s when the world economy shifted from fixed exchange rate to free floating exchange rate. If the exchange rate volatility is higher, then it will generate uncertainty of the future profit from export trade. In this assignment we will discuss on such issues like exchange rate volatility I addition to currency devaluation and its impact on the volume of international trade of developing country focusing Bangladesh. This assignment is based on the exchange rate and its volatility in addition to devaluation that affect on the on international trade of Bangladesh. The concept of the study is taken from the academic activity of ECN-201 course instructed by Mrs. Nahid ferdousi, lecturer of Department of Business Administration of University of Asia Pacific. This paper consists of three parts. In first part we will give a short description of currency valuation and factors that affects the currency valuation, and then we animated the impact of devaluation on the economy focusing developing country like Bangladesh. After all we include some example of currency variation in terms of some countries. All the information we use here is secondary data. As our time is limited and collecting...
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...Nottingham University Business School MBA (Finance) Programme N1DM28 International Finance Discussion and analysis of the movement in the value of US dollar against the Japanese Yen from 2002 to 2011 Kala Premarani Perumal Student ID: UNIMKL 010085 COPY 1 Executive Summary This paper is undertaken to discuss and analyse the exchange rate movements in the value of US dollar (USD) against the Japanese Yen (JPY) from 2002 to 2011. We could evaluate based on the exchange rates, that as an overall the JPY has appreciated against USD during this phase. The JPY had appreciated by 57% over these years (average 2002: ¥125.31/$ to average 2011: ¥79.72/$). The paper identifies the significant influence of the movement and concludes how the future trend would be. The details incorporated in this paper was obtained from business magazines, electronic sources, conference papers and journals relating to the foreign exchange, economy and international trade between these countries. Table of Contents Executive Summary ii 1. Introduction 1 2. Period 1-January 2002 – January 2005 a) Economic Climate 2 b) Current Account Balance 3 c) BOJ Intervention 5 3. Period 2-February 2005 – June 2007 a) Monetary Setting - Interest Rate in United States of America 6 b) Carry Trade...
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...The Rise (and Fall) of the Japanese Yen Lawrence Cifarelli III, Nazanin Ershad, Natthima Sonsoem, Anyesha Mahaptra University of New Haven Abstract This Case study provides an insight to the fluctuations experienced in the currency of Japan, Yen from the late 1990’s to recent years. Japan follows the floating currency monetary policy due to which there is no measures taken on to control the fluctuations. Japan experienced magnificent growth through the 60's, 70's, and 80's leading into the 90's beginning. In the late 1990's, Japan’s economy marked its growth significantly slower, which had then come to be known as the 'lost decade' due to Japanese Asset Price bubble that collapsed. Eventually the nation faced major issues regarding environmental disasters, hollowing out of industries, etc. The past events which have caused the rise and downfall of Japanese Yen has been illustrated for examining the causes of the appreciation and depreciation of this currency. The influence of this floating currency on Japan's economy has been depicted in this case study. This paper also provides some applications of the measures that can maintain the stability of the Japanese Yen. Japan experienced tremendous growth throughout the 1960s, 1970s, and 1980s leading into the leading into the early 1990s. After World War II, Japan underwent a period of restoration followed by the events in 1978 where Japan excelled as a manufacturer partnering with the United States which helped to make its...
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...Chapter 2 International Flow of Funds Lecture Outline Balance of Payments Current Account Capital and Financial Accounts International Trade Flows Distribution of U.S. Exports and Imports U.S. Balance of Trade Trend International Trade Issues Events That Increase International Trade Trade Friction Factors Affecting International Trade Flows Impact of Inflation Impact of National Income Impact of Government Policies Impact of Exchange Rates Interaction of Factors Correcting a Balance of Trade Deficit Limitations of a Weak Home Currency Solution International Capital Flows Distribution of DFI by U.S. Firms Distribution of DFI in the U.S. Factors Affecting Direct Foreign Investment Factors Affecting International Portfolio Investment Agencies that Facilitate International Flows How Trade Affects an MNC’s Value Chapter Theme This chapter provides an overview of the international environment surrounding MNCs. The chapter is macro-oriented in that it discusses international payments on a country-by-country basis. This macro discussion is useful information for an MNC since the MNC can be affected by changes in a country’s current account and capital account positions. Topics to Stimulate Class Discussion 1. Is a current account deficit something to worry about? 2. If a government...
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...Definition Illustration of Operating Exposure Determinants of Operating Exposure Managing Operating Exposure Selecting Low-Cost Production Sites International Finance in Practice: The Strong Yen and Toyota’s Choice Flexible Sourcing Policy Diversification of the Market R&D Efforts and Product Differentiation Financial Hedging International Finance in Practice: Porsche Powers Profit with Currency Plays CASE APPLICATION: Exchange Risk Management at Merck Summary MINI CASE: Economic Exposure of Albion Computers PLC How to Measure Economic Exposure 1. Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange rate a) Can have a significant economic consequences for U.S. firms. b) Can have a significant economic consequences for Japanese firms. c) Can have a significant economic consequences for both U.S. and Japanese firms. d) None of the above Answer: c) 2. Suppose the U.S. dollar substantially depreciates against the Japanese yen. The change in exchange rate a) Will tend to weaken the competitive position of import-competing U.S. car makers. b) Will tend to strengthen the competitive position of import-competing U.S. car makers. c) Will tend to strengthen the competitive position of Japanese car makers at the expense of U.S. makers. d) None of the above Answer: b) 3. When the Mexican peso collapsed in 1994, declining by 37 percent, a) U.S. firms that exported to Mexico and...
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...causes currency supply and demand schedules to change. A | Relative inflation rates | | B | Relative interest rates | | C | Relative income levels | | D | Expectations | | E | All of the above are factors that cause currency supply and demand schedules to change. | | (1 mark) Question 3 If a UK firm's cost of goods sold exposure is much greater than its sales exposure in Switzerland, there is a ____ overall impact of the Swiss franc's depreciation against the pound on ____. A | positive; interest expenses | | B | positive; gross profit | | C | negative; gross profit | | D | negative; interest expenses | | (1 mark) Question 4 Assume zero transaction costs. If the 90-day forward rate of the euro is an accurate estimate of the spot rate 90 days from now, then the real cost of hedging payables will be: A | positive | | B | negative. | | C | positive if the forward rate exhibits a premium, and negative if the forward rate exhibits a discount. | | D | zero. | | (1 mark) Question 5 Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based multinational firm's reported earnings (from the consolidated income statement) to ____. If a firm desired to protect against this possibility, it could stabilize its reported earnings by ____ euros forward in the foreign exchange market. A | be reduced; purchasing | | B | be reduced; selling | | C | increase;...
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...FIN340 304 Tutorial week 3 Questions 1. How can a central bank use direct intervention to change the value of a currency? Explain why a central bank may desire to smooth exchange rate movements of its currency.. 2. Should the governments of Asian countries allow their currencies to float freely? What would be the advantages of letting their currencies float freely? What would be the disadvantages? 3. What is the impact of a weak home currency on the home economy, other things being equal? What is the impact of a strong home currency on the home economy, other things being equal? 4. Assume the Hong Kong dollar (HK$) value is tied to the U.S. dollar and will remain tied to the U.S. dollar. Last month, a HK$ = 0.25 Singapore dollars. Today, a HK$=0.30 Singapore dollars. Assume that there is much trade in the computer industry among Singapore, Hong Kong, and the U.S. and that all products are viewed as substitutes for each other and are of about the same quality. Assume that the firms invoice their products in their local currency and do not change their prices. a. Will the computer exports from the U.S. to Hong Kong increase, decrease, or remain the same? Explain. b. Will the computer exports from Singapore to the U.S. increase, decrease, or remain the same? Explain. NOTE: Explain in great detail with example and diagram if necessary. All presentation must be prepared in Power point slide. 1. A) Central Banks...
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