International Finance

Submitted By asirimohammed
Words 624
Pages 3
International Finance Management / Chapter06-07 Q1 i\$ = 4%; i€ = 3.5%; S = €1.01/\$; F = €0.99/\$. If \$100,000,000 is invested in the U.S., the maturity value in six months will be \$100,000,000 (1 + .04) = \$104,000,000 (\$100,000,000 x 1.01)(1 + .035)(1/0.99) = \$105,590,909 We can see from this that it’s a good investment to invest \$100,000,000 in Germany with exchange risk hedging. Q4. a. (1+ i\$) = 1.014 < (F/S) (1+ i €) = 1.0378.

1. Borrow \$1,000,000 and repay \$1,014,000 in three months. 2. Sell \$1,000,000 spot for €800,000. 3. Invest €800,000 at the euro interest rate of 1.35 % for three months and get €810,800 at maturity. 4. Sell €810,800 forward for \$1,037,758.

Arbitrage profit = \$1,037,758 - \$1,014,000 = \$23,758.

b. Buy \$1,014,000 forward for €792,238

Then the Arbitrage profit = €810,800 - €792,238 = €18,562.

Q5. = 0.0593 - 0.7 = - 64.07% Turkish lira will depreciate against the U.S. dollar by 64%. Q6. = 0.026 – 0.2 = - 17.4% R\$ will be depreciate by 17.4% against the US dollar. The expected exchange rate would be : = (R\$1.95/\$) (1 + 0.174) = R\$2.29/\$

Q7. a. ZAR spot rate under PPP = [1.05/1.11](0.175) = 0.1655 b. Expected ZAR spot rate = [1.10/1.08] (0.158) = 0.1609 c. Expected ZAR under PPP = [(1.07)4/(1.05)4] (0.158) = 0.1704

Q8.

A- 1) 1) Borrow €1,000,000 and promise to repay €1,054,000 in one year. 2) Buy ₤666,667 for €1,000,000. 3) Invest ₤666,667 at the interest rate of 5.2%; the maturity value will be ₤701,334. 4) The arbitrage profit = €1,122,134 - €1,054,000= €68,134.

B. According to this arbitrage transactions, the euro interest rate will Increase and the pound interest rate will...

Similar Documents

International Finance

...International Finance Assignment 1 Nine Dragon Paper NDP case study By: Ehab M. Helmy Marina Emad Supervised By: Dr. Abir Zein How Mrs. Cheung does think? What does she believes in when it comes to building her business? She always thinks ahead and has a strong long-term vision of where her company should be. She has strong industry knowledge and so much enthusiasm for her work. This is the quality that good management must have. She wants to make NDP a 100 years old business, not only a lifelong career for her but a business lasts for generations. (The answer was taken from a research on Mrs. Cheung business history) How would you summarize the company’s financial status? How does it reflect the business development goals and strategies employed by Mrs. Cheung? While trying to analyze a company’s financial status, we have to take a look on three main statements: Balance sheet statement – Cash flow statement – Income statement | | 2011 | 2012 | 2013 | Rate of Change | | Liquidity Ratio | Current Ratio | 1.312961 | 1.014966 | 1.277426 | -3% | Ability of the firm to pay its short term obligations | | Quick Ratio | 0.993251 | 0.71159 | 1.0084 | 2% | | | Returns |   | -0.22696 | 0.258589 |   | | | | | | | | | Assets Management Ratios | Inv. Turn Over | 9.53362 | 6.475214 | 7.604922 | -20% | Utilization of the firm's Assets | | Days of sales outstanding DSO | 75.68459 | 68.40927 | 94.96364 | 25% | | | Fixed Assets......

Words: 402 - Pages: 2

International Finance

...Javier Cuellar Mr. Njoku International Finance December 9, 2011 “The Euro Crisis” Taking this class in international Finance have make me think more about the current events that are going on about finance around the world. Specifically I want to focus in this short essay about The Eurozone that is facing some problems. It is amazing that strong countries are facing problems due to the financial crisis. The crisis has taken longer than experts predicted and the problems are all over the world. In this articles that I found interesting, it explain in graphics four topics about the Eurozone crisis. The four topics are: Deficit, GDP, Unemployment and Debt. Talking about Deficit, the EU rules say that countries using the euro are not allowed to have an annual deficit of more than 3% of GDP. The problem with this is that several countries have failed to keep that rule in recent years. The GDP chart show what the financial crisis has cause to the Eurozone countries. The GDP contracted during the crisis. Unemployment has been growing in the European countries. That is simple logic. Companies do not have money, they start firing employees and the unemployment rate goes up. Having a high debt to GDP Ratio is not that bad. If the country that lend money to you trust that you have the ability to pay back, the interest rate is not going to increase. If the interest rate goes up, the countries start getting more problems to pay the debt. In conclusion, I say......

Words: 322 - Pages: 2

Free Essay

International Finance

...International Finance May 10, 2015 U.S International Debt Please look at the International part of the U.S. Government debt and discuss, 1) why the country has had to rely on International lenders, 2) why the situation with the International lenders may have caused the U.S. Federal Reserve System to initiate Quantitative Easing, and 3) give your opinion of the possible future state of the U.S. economy as it relies on International lenders. This future state should cover government issues, corporate issues, and individual issues. The history of international lending to developing countries shows surges of lending and recurrent financial crisis. Consequently, international lenders have proved to be very important entities during financial crisis. In my personal opinion the United States government has had to rely on international lenders to enable higher spending without having to increase taxes and to meet the debt that the government has created during the past several decades looking forward to recover and stabilize the economy. From the beginning of the early 1990s, the United States has borrowed heavily and continuously money from international lenders and from its trading partners due to the crisis that the United States economy has been experiencing since the recession. Developing countries can be at a disadvantage when it comes to borrowing funds from international lenders. From my point of view, problems can arise when governments do not have the knowledge and......

Words: 876 - Pages: 4

International Finance

Words: 2513 - Pages: 11

International Finance

...MFI 442 International Finance-Individual Assignments II Name Institution MFI 442 International Finance-Individual Assignments II Over the years, global businesses are increasing rapidly because most countries are attractive and have lucrative policies that attract foreign direct investments (FDIs). Foreign direct investments are simply business entities operated by a corporation in one country (the home country) but with subsidiaries in the foreign markets (the host countries) (Agarwal, 2009).A perfect example for FDIs is Multinational Corporations (MNCs) which have their parent company located in their home country but with subsidiaries in foreign markets. In most cases, FDIs are operated through joint ventures, franchises or mergers where the parent company of the MNC acquires other businesses in overseas markets (Chaurasia, 2008). The objective of this assignment, therefore, is to discuss and explain further the operations of MNCs and issues surrounding these corporations. Hedging Transaction Exposure Four of the Hedging Techniques Available To MNCs Hedging simply means minimizing or mitigating the effect of the exchange rate exposure. This risk is of three types namely, translation exposure, economic exposure and transaction exposure (Luo, 2001). A transaction exposure is a form of foreign exchange risk which results to loss or gains when operations are carried out or denominated in foreign currency (Hill, 2005). It is a short-term exposure that......

Words: 4490 - Pages: 18

International Finance

...MFI 442 International Finance-Individual Assignments I Name Institution MFI 442 International Finance-Individual Assignments I Most corporations expand beyond their local boundaries to become multinationals. There are myriad reasons behind this (Wells & Wint, 2000). The biggest of all these reasons is to gain access to international markets and perhaps invest in economic zones that have high investment returns as compared to home countries (Fu, 2000). The trend of globalization has made most firms become multinational corporations. The most common method for MNCs is through franchises (Jones, 2005). In line with this, economists have put up theories explaining why businesses expand beyond their national boundaries (Hicks, 2000). My primary objective in this paper, therefore, is to discuss international finance and other macroeconomics policies. To foresee this goal, I will delve into foreign exchange market and operations of multinational corporations (MNCs). Theories Explaining Why Corporations Expand to become Multinationals a). Financial economists have brought forward three key arguments that enumerate why companies expand their operations to global markets. These theories are; the imperfect markets theory, the comparative advantage theory and the product cycle theory (Levi, 2004). i).The Comparative Advantage Theory This theory is among the most important concepts in international trade. It states that economic welfare increases when countries specialize...

Words: 5206 - Pages: 21

Free Essay

International Finance

...International Finance Research Paper Assignment As part of the course you will write an original paper on an international finance topic. The paper should be short and focused. It should use original data nad if it should include proper references. Your paper should have four parts: introduction, data, analysis, and conclusion. The introduction should state the question that you are asking, explain why this question is important, how you plan to answer the question, and how it is related to what others have done. The data section should describe the data that you are using. This may include the description and discussion of the data source, variables that you are using and a table with descriptive statistics. The analysis may consist of a series of graphs, tables, correlations and perhaps even a regression. The conclusion should summarize the results, state their implications, and suggests further research. Your project should not exceed 20 pages You can choose any of the following topic 1. What determines exchange rates? A study on exchange rtaes of Bangladesh 2. Exchange rate risk managemnt by MNcs (you must answer the following two questions a. What are the types of exchange rate risks faced by the MNCs? b. Understand the attempt for the use of foreign exchange derivatives (exchange rate risk management approaches) that can benefits the MNCs. c. How Bangladeshi companies manage exchange rate risk. 3. Is the......

Words: 257 - Pages: 2

International Finance

... Introduction As the progress of worldwide economy, international transactions are widely utilised in modern countries. In turn exchange rate is playing an increasing significant role in current economy activities. As far as we know exchange rate is very variable and volatile therefore if we cannot have knowledge of the effects of exchange rate on international transactions, it would potentially result in huge lost because of the fluctuations in exchange rate. In this report we are going to discuss 4 basic theories affecting exchange rate that includes: international monetary systems, the balance of payments, exchange rate determinations and international arbitrage. And we will concentrate on the underlying concept and characteristics of each theory and apply them in real world by comparing currency pair actual historical movements, in this report, we specific focus on USD/JPY. The objective of this report is to learn and apply those 4 basic theories and get a clear understanding of how exactly they would affect exchange rate. Finally we will draw conclusions based upon our researches, historical data, and some specific articles in real world. 2. Discussions 2.1 International Monetary System The International Monetary System is the framework of rules, regulations and conventions that govern the financial relations among countries. Such a system is necessary to define a common standard of value for the international currencies. In here, we will mainly discuss the......

Words: 2500 - Pages: 10

International Finance

...International Finance: A Course Overview Mihir A. Desai* Harvard University and NBER ABSTRACT This paper describes the International Finance course at Harvard Business School for instructors considering adopting the associated material. The paper begins by arguing that the forces of globalization have fundamentally changed the scope and activities of firms thereby altering the practice of finance within these firms. As a consequence of an increasing reliance on tightly-integrated foreign operations, a parallel world of finance has been opened within every multinational firm and this world has, heretofore, been overlooked. The course materials are designed to address the many aspects of financial decision making within global firms prompted by these changes that are not addressed in traditional materials. The paper provides an overview of the structure of the course and its seven modules with particular emphasis on the three modules that constitute the core of the course. The paper also describes an analytical framework that has been developed through the creation of the course materials to guide critical financial decisions on financing, investment, risk management and incentive management within a multinational firm. This framework emphasizes the need to reconcile conflicting forces in order for multinational firms to gain competitive advantage from their internal capital markets. The paper concludes with a discussion of the course's pedagogical approach and detailed......

Words: 25419 - Pages: 102

International Finance

...This project is based on international Trade finance The Indian Textile Industry is one of the largest segments of Indian economy accounting for over 20% of the industrial production as well as providing employment to around 65 million persons. It enjoys the distinction of being the highest foreign exchange earner for the country, accounting for nearly one third of the country’s total exports. Therefore, the sector shoulders a major responsibility in enhancing the foreign exchange reserves. Despite strong domestic demand-pull, textile exports have witnessed steady growth over the years. The share of India's textile exports in the world has grown from 1.8% in the beginning of 80's to around 3% at present. The advantages arising from a strong raw material base, a well established yarn and fabric industry and relatively low labor cost has led to quick growth in textile exports, from an insignificant base of less than US \$3 million in the beginning of 70's to nearly US \$ 12-13 billion. However, with the lowering of tariff barriers, removal of quantitative restrictions and the phase out of MFA regime, the textile industry is poised to enter an era of fierce competition, not only in exports but in the domestic market as well. All these developments are bound to have some effects on Indian textile trade and industry. To meet the emerging competition, the Government is continuously providing an enabling environment for the industry to be globally competitive. Realizing......

Words: 535 - Pages: 3

International Finance

...Ismail Mehmet Uluer 4/11/2011 INTERNATIONAL FINANCE AND CAPITAL MARKETS RANGER SUPPLY COMPANY A) First of all the aim of all companies is profit. To decide which factors are important we always need to think about profit. Cost factor is so important to decide which country is more feasible because cost is directly related with distance. To send all products to Europe is different from to send all of these to Canada. Logistic methods, time and cost all these factors are different and they should think about all these factors to determine the cost. In addition to that, profit margin and the size of market is important. They need to go a big market with big opportunities. To make a decision they need to do market analysis. The case does not mention that but I believe there are different growths and different opportunities. Cost-profit calculation must be calculated carefully and they should figure out their supply chain and inventory management. B) This is not a reasonable strategy and the obvious reason of that is high cost. Establishing a subsidiary, hiring or sending employees, training them and because of the similar points it is a long and high cost project and we do not even sure about that. To start to think about a subsidiary first we should be sure about to continue to make business in this market. At that point, subsidiary gives us a chance to solve problems faster, to know market deeper and to reach the customers directly. MAPLELEAF PAPER......

Words: 542 - Pages: 3

International Finance

...Chapter 01 Globalization and the Multinational Firm  End of chapter question 1,2,4,5,6   Multiple Choice Questions   1. What major dimension sets apart international finance from domestic finance?  A. Foreign exchange and political risks B. Market imperfections C. Expanded opportunity set D. All of the above 2. An example of a political risk is  A. expropriation of assets. B. adverse change in tax rules. C. the opposition party being elected. D. both answers a) and b) are correct. 3. Production of goods and services has become globalized to a large extent as a result of  A. natural resources being depleted in one country after another. B. skilled labor being highly mobile. C. multinational corporations' efforts to source inputs and locate production anywhere where costs are lower and profits higher. D. common tastes worldwide for the same goods and services.  4. Recently, financial markets have become highly integrated. This development  A. allows investors to diversify their portfolios internationally. B. allows minority investors to buy and sell stocks. C. has increased the cost of capital for firms. D. answers a) and c) are both correct 5. Suppose your firm invests \$100,000 in a project in Italy. At the time the exchange rate is \$1.25 = €1.00. One year later the exchange rate is the same, but the Italian government has expropriated your firm's assets paying only €80,000 in compensation. This is an example of  A. exchange rate......

Words: 1599 - Pages: 7

International Finance

Words: 1923 - Pages: 8

...Task Brief 2 – Written Assignment Module Title: | International Business Finance | Assessment Title: | Written Assignment | Individual/Group: | Individual | Weighting: | 70% | Submission Date: | week 24 | Instructions To Students For Submission Of This Coursework Task Details: This task takes the form of an essay and constitutes 70% of overall assessment for the module. You are required to choose ONE of the following two topics: (i) Discuss and evaluate the advantages and disadvantages of the methods used in order to hedge against the exchange rate risk? (iii) Why is it so difficult to predict future exchange rates? Critically evaluate the main methods available for predicting the future direction of exchange rates and assess their effectiveness in providing forecasts of use to international companies. Particular instructions to students: The assignment is to be no longer than 3000 words and should contain critical analysis, relevant empirical evidence and examples. Purpose of the module:This modules aims: • To provide an understanding of the theories and empirical evidence related to foreign exchange markets, and the implications of these for international firms. • To generate an understanding of the methods available to international companies to finance international trade investment and the risk associated with investment operations. • To review the alternative sources of funding available to a company.• To......

Words: 850 - Pages: 4