Hilton a US based Multinational Company will receive 2,000,000 Euros in one-year time from items it exported. It did not hedge this transaction; Hilton believes that the future value of the Euro will be determined by Purchasing Power Parity (PPP). It expects that inflation in countries using Euro will be 12% next year, while inflation in the US will be 7% next year.The spot rate of Euro is $ 1.46 and the one-year forward rate is $1.50Required:Estimate the amount of US dollars that Hilton will receive in the one year when converting its Euro receivables into US dollarThe spot rate of the Australian dollar is pegged at $ 0.13. Hilton believes that the Australian dollar will remain pegged to the US dollar for the next year. If Hilton decides to convert its 2 million Euros into Australian dollar instead of US dollars at the end of one year, estimate the amount of Australian dollars that Hilton will receive in one year when converting its Euro receivables into Australian dollars.

Given, Hilton a US-based Multinational Company will receive 2,000,000 Euros in one-year time from…

Answered: Hilton a US based Multinational Company…

Economics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506725

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter27: Investment, The Capital Market, And The Wealth Of Nations

Section: Chapter Questions

Problem 9CQ

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Hilton a US based Multinational Company will receive 2,000,000 Euros in one-year time from items it exported. It did not hedge this transaction; Hilton believes that the future value of the Euro will be determined by Purchasing Power Parity (PPP). It expects that inflation in countries using Euro will be 12% next year, while inflation in the US will be 7% next year.

The spot rate of Euro is $ 1.46 and the one-year forward rate is $1.50

Required:

Estimate the amount of US dollars that Hilton will receive in the one year when converting its Euro receivables into US dollar
The spot rate of the Australian dollar is pegged at $ 0.13. Hilton believes that the Australian dollar will remain pegged to the US dollar for the next year. If Hilton decides to convert its 2 million Euros into Australian dollar instead of US dollars at the end of one year, estimate the amount of Australian dollars that Hilton will receive in one year when converting its Euro receivables into Australian dollars.

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