12. Compute exchange rates, FX appreciations, and USD profits below of this U.S.-based company that makes autoparts in China (paying CNY) and sells to Germany (receiving EUR). Foreign revenues and costs increase with foreign country inflation. Compute profits under two scenarios (1) the exchange rates at T-1 are equal to PPP forecast, or (2) the actual T=1 exchange rates provided below. Revenues in EUR T=0 Costs in CNY T=0 USDCNY T=0 Actual USDCNY T=1 Actual EURUSD T=0 Actual EURUSD T=1 Actual U.S. Inflation China Inflation Germany Inflation USDCNY T=1 PPP EURUSD T=1 PPP USDCNY Real Rate T=1 EURUSD Real Rate T=1 CNY Real Appreciation EUR Real Appreciation Revenues in EUR T=1 with German infl. Costs in CNY T=1 wich China inflation Profits if FX rates = PPP forecasts Revenue (USD) Costs (USD) Profit (USD) Profits if FX rates = Actual FX rates Revenue (USD) Costs (USD) Profit (USD) S S ???? ???? ???? ???? ????? ????? 1,000,000 6,000,000 ????? ????? ???? ???? ???? ???? ???? ???? 1.1050 1.0524 6.50 6.80 0.00% 25.00% 5.00% T=0 T=0 T=1 ???? ???? ????? ???? ???? ???? T=1 % Change #VALUE! #VALUE! #VALUE! % Change #VALUE! #VALUE! #VALUE!

12. Compute exchange rates, FX appreciations, and USD profits below of this U.S.-based company that makes autoparts in China (paying CNY) and sells to Germany (receiving EUR). Foreign revenues and costs increase with foreign country inflation. Compute profits under two scenarios (1) the exchange rates at T-1 are equal to PPP forecast, or (2) the actual T=1 exchange rates provided below. Revenues in EUR T=0 Costs in CNY T=0 USDCNY T=0 Actual USDCNY T=1 Actual EURUSD T=0 Actual EURUSD T=1 Actual U.S. Inflation China Inflation Germany Inflation USDCNY T=1 PPP EURUSD T=1 PPP USDCNY Real Rate T=1 EURUSD Real Rate T=1 CNY Real Appreciation EUR Real Appreciation Revenues in EUR T=1 with German infl. Costs in CNY T=1 wich China inflation Profits if FX rates = PPP forecasts Revenue (USD) Costs (USD) Profit (USD) Profits if FX rates = Actual FX rates Revenue (USD) Costs (USD) Profit (USD) S S ???? ???? ???? ???? ????? ????? 1,000,000 6,000,000 ????? ????? ???? ???? ???? ???? ???? ???? 1.1050 1.0524 6.50 6.80 0.00% 25.00% 5.00% T=0 T=0 T=1 ???? ???? ????? ???? ???? ???? T=1 % Change #VALUE! #VALUE! #VALUE! % Change #VALUE! #VALUE! #VALUE!

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter4: Exchange Rate Determination

Section: Chapter Questions

Problem 25QA

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