International Financial Management

26. A financial manager has detrermined that the appropriate rate discount for a foreign project is 17 percent. However, that discount rate applies in the United States using dollars. What discount rate should be used in the foreign country using the foreign currency? The inflation rate in the United States and in the foreign country is expected to be 3 percent and 8 percent, respectively.

15. (TCO 4) A limited liability company has which of the following advantages? (Select all that apply.)

A. The future value of an annuity is unaffected by the amount of each annuity payment.

b. The possible reason of the externality being a cause of this could be the fact that if other people follow suit there will be an oversupply of the same kind of a service which may further lead to the market failure

c) The present value of $500 to be received in one year when the opportunity cost rate is 8 percent (discounting):

a. Compare Samsung’s “value stick” to that of an “industry average” competitor and briefly justify any differences. (Remember that willingness-to-pay and willingness-to-supply are generally unobservable, but you can still engage in informed speculation.)

Question 12 Refer to the data in Question 11. The profit maximizing level of output is (a) 2 units (b) 3 units (c) 4 units (d) 5 units

15. You are trying to decide how to invest your retirement savings. Over the past three years, stock #1

Answers: 1. a 2. d 3. b 4. c 5. b 6. d 7. d 8. a 9. c 10. b

This week’s homework is divided into two parts. First, please answer the 2 questions below. Second, you will develop a trading strategy based on a concept known as “triangular arbitrage.” Below you will find links to four brief videos explaining the concept & how to test for its existence.

b. The good results in Columbia were due to sampling, significant price discounts and couponing- can’t keep this

3) What goal would you recommend for the firm’s currency risk management program? Why? Based on your goal, what types of exposure should Aspen be measuring?

4.16 Suppose five-year deposit rates on Eurodollars and Euro marks are 12% and 8%, respectively. If the current spot rate for the mark is $0.50, then the spot rate for the mark five years from now implied by these interest rates is

If the new spot rate is above 1.0847(1.06470.02), the option is out-of-the money and it dominates the money market hedge (because when the euro is sufficiently strong, then the free disposal (the right to throw away the put) of the out-of-the money option becomes very valuable). The new spot rate is so attractive that you can pay for the (unused) put option and still do better than the money market forward rate. e) You learn that UBS Warburg expects the European currency to hit 1.15 by the end of the year. You strongly believe in UBS Warburgs forecast, what hedging plan would work best for you 3 Given that you strongly believe in the euro appreciation beyond 1.0847 USD/EUR and you have a receivable in six months, the option hedge would be the most profitable of the plans according to your expectations.  QUESTION 3 - 15 points In the US Semiconductor (USS) case, the group controllers of USS suggested that for the translation of a new UK

There are four main methods for hedging the currency exposure of DEM; Forward, Money Market, Futures and Currency Options. Each alternative has different timing of cash flows and costs.