Exam 19: Multinational Financial Management

The cash flows relevant for a foreign investment should,from the parent company's perspective,include the financial cash flows that the subsidiary can legally send back to the parent company plus the cash flows that must remain in the foreign country.

Stover Corporation,a U.S.based importer,makes a purchase of crystal glassware from a firm in Switzerland for 39,960 Swiss francs,or $24,000,at the spot rate of 1.665 Swiss francs per dollar.The terms of the purchase are net 90 days,and the U.S.firm wants to cover this trade payable with a forward market hedge to eliminate its exchange rate risk.Suppose the firm completes a forward hedge at the 90-day forward rate of 1.682 Swiss francs.If the spot rate in 90 days is actually 1.615 Swiss francs,how much in U.S.dollars will the U.S.firm have saved or lost by hedging its exchange rate exposure? Do not round the intermediate calculations and round the final answer to the nearest cent.

Individuals and corporations can buy or sell forward currencies to hedge their exchange rate exposure.Essentially,the process involves simultaneously selling the currency expected to appreciate in value and buying the currency expected to depreciate.

Suppose the exchange rate between U.S.dollars and Swiss francs is SF 1.41 = $1.00,and the exchange rate between the U.S.dollar and the euro is $1.00 = 0.70 euro.What is the cross rate of Swiss francs to euros? (In other words,how many Swiss francs are needed to purchase one euro?)Do not round the intermediate calculations and round the final answer to four decimal places. ​

If one U.S.dollar buys 1.59 Canadian dollars,how many U.S.dollars can you purchase for one Canadian dollar?

Which of the following are reasons why companies move into international operations?

Suppose a foreign investor who holds tax-exempt Eurobonds paying 10.50% is considering investing in an equivalent-risk domestic bond in a country with a 28.00% withholding tax on interest paid to foreigners.If 10.50% after-tax is the investor's required return,what before-tax rate would the domestic bond need to pay to provide the required after-tax return?

LIBOR is an acronym for London Interbank Offered Rate,which is an average of interest rates offered by London banks to smaller U.S.corporations on all deposits.

Exchange rate risk is the risk that the cash flows from a foreign project,when converted to the parent company's currency,will be worth less than was originally projected because of exchange rate changes.

Suppose one British pound can purchase 1.86 U.S.dollars today in the foreign exchange market,and currency forecasters predict that the U.S.dollar will depreciate by 12.00% against the pound over the next 30 days.How many dollars will a pound buy in 30 days?

The United States and most other major industrialized nations currently operate under a system of floating exchange rates.

A currency trader observes the following quotes in the spot market: 1 U.S.dollar = 1.34 Japanese yen 1 British pound =2.25 Swiss francs 1 British pound =1.65 U.S.dollars Given this information,how many yen can be purchased for 1 Swiss franc? Do not round the intermediate calculations and round the final answer to four decimal places.

If an investor can obtain more of a foreign currency for a dollar in the forward market than in the spot market,then the forward currency is said to be selling at a discount to the spot rate.

If one British pound can purchase $2.00 U.S.dollars,how many British pounds can one U.S.dollar buy?

Exchange rate quotations consist solely of direct quotations.

Suppose a U.S.firm buys $200,000 worth of television tubes from a Mexican manufacturer for delivery in 60 days with payment to be made in 90 days (30 days after the goods are received).The rising U.S.deficit has caused the dollar to depreciate against the peso recently.The current exchange rate is 5.68 pesos per U.S.dollar.The 90-day forward rate is 5.45 pesos/dollar.The firm goes into the forward market today and buys enough Mexican pesos at the 90-day forward rate to completely cover its trade obligation.Assume the spot rate in 90 days is 5.30 Mexican pesos per U.S.dollar.How much in U.S.dollars did the firm save by eliminating its foreign exchange currency risk with its forward market hedge? Do not round the intermediate calculations and round the final answer to the nearest cent. ​

A box of candy costs 28.80 Swiss francs in Switzerland and $21.80 in the United States.Assuming that purchasing power parity (PPP)holds,how many Swiss francs are required to purchase one U.S.dollar? Do not round the intermediate calculations and round the final answer to four decimal places.

If one Swiss franc can purchase 0.85 U.S.dollar,how many Swiss francs can one U.S.dollar buy?

If a dollar will buy fewer units of a foreign currency in the forward market than in the spot market,then the forward currency is said to be selling at a premium to the spot rate.

Today in the spot market $1 = 1.82 Swiss francs and $1 = 130 Japanese yen.In the 90-day forward market,$1 = 1.84 Swiss francs and $1 = 127 Japanese yen.Assume that interest rate parity holds worldwide.Which of the following statements is most CORRECT?