Exam 23: International Corporate Finance

A U.S. firm acquires a British firm that will generate cash flows of 10,000 pounds next year and these cash flows will grow at 6% a year. If the British WACC is 9% and the spot exchange rate is $1.9/pound, what is the present value (PV) of the cash flows from this acquisition to domestic shareholders?

The one-year forward exchange rate is Rupees 45/$. If the one-year interest rate in the United States is 5% and in India is 8%, what is the spot exchange rate so as to preclude arbitrage?

Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT's U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan, the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions): -After the Irish taxes are paid, the amount of the earnings before interest and after taxes in dollars from the Ireland operations is closest to ________.

A U.S. firm acquires a British firm that will generate cash flows of 30,000 pounds next year and these cash flows will grow at 3% a year. If the British WACC is 9% and the spot exchange rate is $1.7/pound, what is the present value (PV) of the cash flows from this acquisition to domestic shareholders?

Consider the following equation: S × [(Foreign Cash Flow) / (1 + rFC] = (Forward Rate × Foreign Cash Flow) / (1 + r$) The term r$ in this equation is ________.

Assuming Covered Interest Parity holds, a(n) ________ in the domestic interest rate will ________ the forward rate, all other things held constant.

The one-year forward exchange rate is Rupees 50/$. If the one-year interest rate in the United States is 5% and in India is 8%, what is the spot exchange rate so as to preclude arbitrage?

What are internationally segmented capital markets?

Use the information for the question(s) below. KT Enterprises, a U.S. import-export trading, is considering its international tax situation. Currently KT's U.S. tax rate is 35%. KT has significant operations in both Japan and Ireland. In Japan, the current exchange rate is ¥118.4/$ and earnings in Japan are taxed at 41%. In Ireland the current exchange rate is $1.27/€ and earnings in Ireland are taxed at 12.5%. KT's profits, which are fully and immediately repatriated, and foreign taxes paid for the current year are shown here (in millions): -The amount of the taxes paid in dollars for the Irish operations is closest to ________.

Exchange rate risk exists if the firm's free cash flows are correlated with the spot exchange rate.

Assume IBM enters into a forward contract to purchase 100,000 euros at a rate of $1.60/euro one year from today. If the spot exchange rate is $2/euro one year later, what is the dollar amount that IBM must pay to receive the euros?

The spot exchange rate is the current rate at which one currency can be converted into another today.

The spot exchange rate for Indian Rupees is Rs 41/$. The one-year forward exchange rate is Rs 42/$ and the one-year U.S. interest rate is 4%. What is the implied one year interest rate in India?

Suppose a firm imports goods from Europe and the import price is denominated in euros, then ________.

The one-year forward exchange rate for the British Pound is $1.80/Pound. If the one-year U.S. interest rate is 4.5% and the one-year British interest rate is 6%, compute the implied spot exchange rate in $/Pound.

If a firm hedges a future purchase of euros by purchasing a call option, the firm ________ the potential cost but will benefit if the euro ________.

If a foreign project is owned by a domestic corporation, managers and shareholders need to determine the home currency value of the foreign currency cash flows.

If the cash flows generated by a foreign investment are ________ with ________, we do not need to consider the impact of exchange rate risk.

Suppose the domestic cost of capital for a U.S.-based company is 8%. Also, the U.S. interest rate is 4% and the European interest rate is 7%. What is the foreign denominated cost of capital for the company?

What is covered interest parity?