The USD vs. GBP exchange rate is $1.50 vs. £1. A UK MNC operating in the US plans to sell goods worth $100 mil- lion at today’s prices to US customers. Show that its GBP revenue in r eal terms will not be affected if PPP applies under each of the following conditions: (i) UK and US inflation at 5% p.a. (ii) UK inflation 5%, US inflation 2%. (iii) UK inflation 2%, US inflation 5%.
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The USD vs. GBP exchange rate is $1.50 vs. £1. A UK MNC operating in the US plans to sell goods worth $100 mil- lion at today’s prices to US customers. Show that its GBP revenue in r eal terms will not be affected if PPP applies under each of the following conditions:
(i) UK and US inflation at 5% p.a.
(ii) UK inflation 5%, US inflation 2%.
(iii) UK inflation 2%, US inflation 5%.
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- Assume UK inflation rate falls relative to US inflation rate. Other things being equal, how should this affect the (a) UK demand for Dollars, (b) supply of Dollars for sale, and (c) equilibrium value of Dollars? (Indicate with a single graph). Which currency is going to appreciate in this regard?A foreign exchange trader with a U.S. bank took a speculative long position of £6,000,000 when the GBP/USD was 1.3233. Subsequently, the exchange rate has changed to 1.3342. If the position is closed now, what is the profit/loss arising from that trade? (USD, no cents)The Mexican peso is trading at 11 pesos per dollar.If the expected U.S. inflation rate is 1% while theexpected Mexican inflation rate is 15% over the nextyear, given PPP, what is the expected exchange rate inone year?
- Assume that interest rate parity holds. The U.S. five‑year interest rate is 0.07 annualized, and the Mexican five‑year interest rate is 0.03 annualized. Today’s spot rate of the Mexican peso is $0.30. What is the approximate 10‑year forecast of the peso’s spot rate if the 10‑year forward rate is used as a forecast?Assume that interest rate partiy holds. The U.S five year interest rate is 4% annualized, and the Mexican five -year interest rate is 6% annualized. Todays spot rate of the Mexican peso is $0.24. The approximate five-year forecast of the pesos spot rate is $ ______ if the five year foward rate is used as a forecast.a) If a country has exhibited a lower inflation than its major trading partner country, how would you expect this to affect the currency value for that country with respect to its trading partner? Why may this expected relationship not always occur? b) Assume that the inflation rate in India is expected to increase substantially. How will this affect India’s nominal interest rates and the value of Indian rupee (INR)? If the International Fisher Effect (IFE) holds, how will the nominal return to the U.S. institutional investors investing in Indian financial markets be affected by the higher inflation in India? Explain. c) Explain why the high inflation in India may lead to severe pressure on the INR.
- How could (2) the acquisition of a Moldovan soft drinks company by a US company for 5 million dollars in 2018 and (3) annual profits from the US investment in Moldova at 145.000 $ in 2019 be recorded in the balance payments in Moldova and the USA in 2018 and 2019. (Please answer 2 and 3 seperately.)a) Subsidiary A of a U.S. Corporation has net inflows in Australian dollars of A$1,000,000, while Subsidiary B has net outflows in Australian dollars of A$1,500,000. The expected exchange rate of the Australian dollar is $.55. What is the net inflow or outflow, as measured in U.S. dollars? b) If you are a U.S. importer of Indian goods and you believe that today’s forward rate of the INR is a very accurate estimate of the future spot rate, do you think INR call options would be a more appropriate hedge than a forward hedge? c) Under what conditions would a U.S. parent’s subsidiary consider using a “leading” strategy and a “lagging” strategy to reduce its transaction exposure? Explaina) A U.S. firm that exports most of its products to Canada. Initially its products were invoiced in Canadian dollars to accommodate the importers. After a few more years of continual concern about possible exchange rate movements, it requested its Canadian customers to pay for future orders with U.S. dollars instead of Canadian dollars. The customers decided to oblige, since the number of Canadian dollars to be converted into U.S. dollars when importing the goods from the U.S. firm was still slightly smaller than the number of Canadian dollars that would be needed to buy the product from a Canadian manufacturer. Based on this situation, has transaction exposure changed for the U.S. firm? Has its economic exposure changed? Explain. b) A U.S. firm which has no other international business, plans to create and finance a subsidiary in Mexico to produce computer components at a low cost and export them to Caribbean islands and will invoice the products in U.S. dollars. The…
- A US based exporter sells US made goods in UK. The revenue last year was £1,000. The cost of goods was $800. The spot exchange rate was $1.25 per £. What was the profit in dollars? $400 $300 $250. Pls sir very fastQuestion 1 Appreciation vs. Depreciation: You are given the following information regarding the nominal exchange rate between the USD and the Indian rupee (INR): Wednesday: INR 65 per USD 1 Thursday: INR 78 per USD 1 Friday: INR 74 per USD 1 Is it possible for any two currencies (e.g., the Canadian dollar-CAD and the Egyptian pound-EGP) to simultaneously appreciate relative to one another? Explain. The average price for a 16” pepperoni pizza in the U.S. is USD 10. The average price for a similar pizza in Ukraine is UAH 28. The nominal exchange rate is UAH 28 to USD 1. From the U.S. perspective, what is the real exchange rate for pizza between the U.S. and Ukraine? In other words, how many 16” pepperoni pizzas can you afford in Ukraine for what it costs to buy a similar pizza in the U.S.? (Show all work for full credit.)A source of variation to consider in valuing a cross-border M&A is _____. foreign currency exchange rates All of the above accounting principles the timing of cash remittance