A U.S. firm holds an asset in Israel and faces the following scenario: $\begin{array} { l l l l } \hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \\ \hline \text { Probability } & 25 \% & 50 ^ { \circ } \text { o } & 25 \% \\ \text { Spot rate } & \$ 0.30 \text { ILS } & \text { \$0.20 ILS } & \$ 0.15 / \text { ILS } \\ \text { P* } & \text { ILS2,000 } & \text { ILS5,000 } & \text { ILS3,000 } \\ \text { P } & \$ 3,000 & \text { \$2.500 } & \text { \$750 } \end{array}$ where, P* = Israeli new shekel (ILS) price of the asset held by the U.S. firm P = dollar price of the same asset -Which of the following conclusions are correct? (Round your final answer to nearest whole dollar and round intermediate calculations to 2 decimal places)

A) most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 236,717 ($)2 and 493,751 ($)2 respectively B) most of the volatility of the dollar value of the Israeli asset can not be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 236,717 ($)2 and 493,751 ($)2 respectively C) most of the volatility of the dollar value of the Israeli asset can not be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 493,751 ($)2 and 236,717 ($)2, respectively D) most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 493,751 ($)2 and 236,717 ($)2 respectively A) most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 236,717 ($)2 and 493,751 ($)2 respectively B) most of the volatility of the dollar value of the Israeli asset can not be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 236,717 ($)2 and 493,751 ($)2 respectively C) most of the volatility of the dollar value of the Israeli asset can not be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 493,751 ($)2 and 236,717 ($)2, respectively D) most of the volatility of the dollar value of the Israeli asset can be removed by hedging exchange risk because b2[Var(S)] and Var(e) are 493,751 ($)2 and 236,717 ($)2 respectively

A U.S. firm holds an asset in Israel and faces the following scenario: $\begin{array} { l l l l } \hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \\ \hline \text { Probability } & 25 \% & 50 ^ { \circ } \text { o } & 25 \% \\ \text { Spot rate } & \$ 0.30 \text { ILS } & \text { \$0.20 ILS } & \$ 0.15 / \text { ILS } \\ \text { P* } & \text { ILS2,000 } & \text { ILS5,000 } & \text { ILS3,000 } \\ \text { P } & \$ 3,000 & \text { \$2.500 } & \text { \$750 } \end{array}$ where, P* = Israeli new shekel (ILS) price of the asset held by the U.S. firm P = dollar price of the same asset -The variance of the exchange rate is: (Round your final answer and intermediate calculations to 6 decimal places)

A) 0.001968. B) 0.002969. C) 0.003968. D) 0.004968. A) 0.001968. B) 0.002969. C) 0.003968. D) 0.004968.

A U.S. firm holds an asset in Israel and faces the following scenario: $\begin{array} { l l l l } \hline & \text { State 1 } & \text { State 2 } & \text { State 3 } \\ \hline \text { Probability } & 25 \% & 50 ^ { \circ } \text { o } & 25 \% \\ \text { Spot rate } & \$ 0.30 \text { ILS } & \text { \$0.20 ILS } & \$ 0.15 / \text { ILS } \\ \text { P* } & \text { ILS2,000 } & \text { ILS5,000 } & \text { ILS3,000 } \\ \text { P } & \$ 3,000 & \text { \$2.500 } & \text { \$750 } \end{array}$ where, P* = Israeli new shekel (ILS) price of the asset held by the U.S. firm P = dollar price of the same asset -The "exposure" (i.e.the regression coefficient beta)is: (Round your final answer to nearest whole dollar and intermediate calculations to 6 decimal places) Hint: Calculate the expression Cov(P,S)/Var(S)

A) 128. B) 1,289. C) 12,894.00. D) None of these. A) 128. B) 1,289. C) 12,894.00. D) None of these.

Exam 12: Management of Economic Exposure

ABC Inc.,a Canadian paper manufacturer,has a subsidiary in the United States which sources its wood from Canada.The US dollar depreciates rapidly.Discuss the likely competitive and conversion effects of the depreciation of the US dollar.

(Essay)

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Question 21

A U.S. firm holds an asset in Israel and faces the following scenario: State 1 State 2 State 3 Probability 25\% 5 o 25\% Spot rate \ 0.30 ILS \0 .20 ILS \ 0.15/ ILS P* ILS2,000 ILS5,000 ILS3,000 P \ 3,000 \2 .500 \7 50 where, P* = Israeli new shekel (ILS) price of the asset held by the U.S. firm P = dollar price of the same asset -Which of the following conclusions are correct? (Round your final answer to nearest whole dollar and round intermediate calculations to 2 decimal places)

(Multiple Choice)

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Question 22

The extent to which the value of the firm is affected by unanticipated changes in exchange rates is called:

(Multiple Choice)

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Question 23

A U.S. firm holds an asset in Israel and faces the following scenario: State 1 State 2 State 3 Probability 25\% 5 o 25\% Spot rate \ 0.30 ILS \0 .20 ILS \ 0.15/ ILS P* ILS2,000 ILS5,000 ILS3,000 P \ 3,000 \2 .500 \7 50 where, P* = Israeli new shekel (ILS) price of the asset held by the U.S. firm P = dollar price of the same asset -The variance of the exchange rate is: (Round your final answer and intermediate calculations to 6 decimal places)

(Multiple Choice)

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Question 24

A U.S. firm holds an asset in Israel and faces the following scenario: State 1 State 2 State 3 Probability 25\% 5 o 25\% Spot rate \ 0.30 ILS \0 .20 ILS \ 0.15/ ILS P* ILS2,000 ILS5,000 ILS3,000 P \ 3,000 \2 .500 \7 50 where, P* = Israeli new shekel (ILS) price of the asset held by the U.S. firm P = dollar price of the same asset -The "exposure" (i.e.the regression coefficient beta)is: (Round your final answer to nearest whole dollar and intermediate calculations to 6 decimal places) Hint: Calculate the expression Cov(P,S)/Var(S)

(Multiple Choice)

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Question 25

Banff Inc.is headquartered in Calgary and produces high-end living room furniture.The firm has a subsidiary in Germany.The wooden frames of the sofas are made in Calgary by an independent contractor and then shipped to Germany.The German subsidiary then upholsters the sofas using Belgium fabrics.Each frame costs the subsidiary C$1,500.The materials and labour for the upholstery amount to euro 2,000 per sofa.Fixed overhead costs are euro 1,500,000 for the subsidiary.Banff Inc.expects to be able to sell 3,000 Sofas for 5,000 euros each.The firm can depreciate 1,000,000 euros per year.The German income tax rate is 40%.The current exchange rate is C$1.5/euro.How would the operating cash flows (expressed in Canadian dollars)change if the exchange rate is C$1.6/euro,all else equal?

(Essay)

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Question 26

The table below provides the information about the future possible exchange rates and the value of your foreign assets. State Prob.P* S($/£)P(=SP*) 1 0)25 £950 1.5 $1,425 2 0)5 £1,000 1.6 $1,600 3 0)25 £1,100 1.7 $1,870 Based on this information,you can construct a perfect hedge by buying £2700 of call options and some put options with strike price 1.6$/£.How many put options you need to buy:

(Multiple Choice)

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Question 27

Based on the following information about the future possible exchange rates and the value of your foreign assets,you have computed Var(S)= 0.00666667 and Cov(P,S)= 12.If you use the appropriate forward hedge,what will be the value of your hedged position in a situation when the future spot exchange rate is 1.4$/£? State Prob.P* S($/£)P( = SP*) 1 1/3 £1000 1.4 $1,400 2 1/3 £1,000 1.5 $1,500 3 1/3 £1,100 1.6 $1,760

(Multiple Choice)

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Question 28

ABC Inc.,a Canadian paper manufacturer,has a subsidiary in the United States which sources its wood from Canada.The US dollar depreciates rapidly.Discuss the likely competitive and conversion effects of the depreciation of the US dollar.

The extent to which the value of the firm is affected by unanticipated changes in exchange rates is called:

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

International Banking and Money Market

International Bond Market

International Equity Markets

Futures and Options on Foreign Exchange

Interest Rate and Currency Swaps

International Portfolio Investment

Management of Transaction Exposure

Management of Translation Exposure

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

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International Tax Environment

Corporate Governance Around the World

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