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Timberland: Swiss Franc and Forward Rate Essay

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FINAL EXAMINATION INTERNATIONAL BUSINESS 491-452

Due Saturday May 10, 2014

This exam has been posted on the class website on April 25th, 2014 and is due back as an e-mail attachment in Microsoft Word or pdf format or by fax (914-923-1416) by 11:55PM on Saturday, May 10, 2014.

Late submissions will be downgraded!

This is an open book test and you may discuss an answer with other students. But you must submit your own answer in your own words! Further any information taken from the text or other sources must be paraphrased.

That is, it also must be put into your own words. No quotes! Warning! Common or group answers are not accepted and will receive zero credit.

Read The Questions Carefully and Be Sure to Address …show more content…

What are two other ways Nestle might hedge its SF/US$ exposure?

3. In his book Manias, Panics and Crashes (see the Introduction and Chapters posted on the class website) Charles Kindleberger explains the three stages of how a financial crisis develops and evolves over time. Please briefly explain these stages and how the Baltic and Mexican Tequila Crises as presented in the Hill text and the class case presentation follow this economic pattern or paradigm.

4. Apple, whose global sales are generally dollar denominated, finds it has excess cash of $155,000,000,000, which it can invest for up to three years. It has determined that its best options are either a three-year Euro-dollar ($) deposit paying 2.75% or a three-year Swiss Franc denominated deposit paying 1.60% since it expects the SF to appreciate 1.15% per annum against the dollar over the next three years. Using cash flow analysis determine the best currency option in which Apple should invest. Be sure to show your complete calculations of the annual return on each investment at the end of the three-year term. Assume that the annual interest amount is reinvested, i.e. compounds, at the same annual interest rate. Would your answer change if Apple revised its outlook for the SF to appreciate 1.2% per year? Show all calculations!!!

5. Country A has 56,000 units of labor and can produce 2 goods, manufactures and food. A’s producers take 7 units of labor to produce one unit of

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