International Financial Management (mindtap Course List)
14th Edition
ISBN: 9780357130544
Author: Jeff Madura
Publisher: Cengage Learning
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If a U.S.-based MNC focused completely on exporting, then its valuation would likely be adversely affected if most currencies were expected to appreciate against the dollar over time.
Group of answer choices
True
False
1. An australian company, X, currently exports bulk of its production to a Malaysian company under a fixed AUD pricing arrangement with settlement terms 180 days after delivery.
Given that movements in the AUD and commodity prices have traditionally been highly correlated, what is the primary risk faced by X in respect of these exports and explain why?
(a) Credit Risk
(b) Liquidity Risk
(c) Interest Rate risk
(d) Commodity price rise
A U.S. firm holds an asset in France and faces the following scenario:
State 1
State 2
State 3
State 4
Probability
25%
25%
25%
25%
Spot rate
$1.26/€
$1.24/€
$1.17/€
$1.12/€
P *
€1800
€1400
€1300
€1100
In the above table, P * is the euro price of the asset held by the U.S. firm.
What is the variance of the spot rate (X.XXXXX
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- Percentage Depreciation Inflation Effects on Exchange Rates Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar?arrow_forwardA key issue facing financial executives of multinational firms is exposure to exchange rate changes.a. Define exposure, differentiating between accounting and economic exposure. What role does inflation play?b. Describe at least three circumstances under which economic exposure is likely to exist? c. Of what relevance are the international Fisher effect and purchasing power parity to your answers to parts a and b? d. What is exchange risk, as distinct from exposurearrow_forwardGiven the following information, are there geographic arbitrage opportunities available? If so, what level of additional transaction costs in each market will eliminate this opportunity? (All quotes are at time 0). Quotes for the US dollar in South Korea: 1361-1385 Quotes for the South Korean Won in the US: 0.000741 - 0.000762.arrow_forward
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