International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Uncertainty Surrounding an MNC’s Cash Flows
Assume that Bangor Co. (a U.S. firm) knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 200,000 Swiss francs due to exports to Swiss operations, and cash outflows of 500,000 Swiss francs at the end of the year. While the future value of the Swiss franc is uncertain because it fluctuates, your best guess is that the Swiss franc’s value will be $1.10 at the end this year. What are the expected dollar cash flows of Bangor Co?
Assume that Concord Co. (a U.S. firm) is in the same industry as Bangor Co. There is no political risk that could have any impact on the cash flows of either firm. Concord Co. knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 700,000 Swiss francs due to exports to Swiss operations, and cash outflows of 800,000 Swiss francs at the end of the year. Is the valuation of the total cash flows of Concord Co. more uncertain or less uncertain than the…
Assume that Blue Bell has expected cash flows of $325,000 from domestic operations, SF250,000 from Swiss operations, and 200,000 euros from Italian operations at the end of the year. The Swiss franc's value and euro's value are expected to be $.93 and $1.37 respectively, at the end this year. What are the expected dollar cash flows of Blue Bell?
International financial management: MCQ
An UK- based MNC expect to receive £20,000 from domestic operations and 20,000 Euro (€) from a business in Belgium. If the pound’s value is €1.05, the expected total cash flows in pound are:
(a) £41,000
(b) £39,470
(c) £45,000
(d) none of the above
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- 1. Perth International Co., an Australian multinational company, forecasts 63 million Australian dollars (A$) earnings next three years. It expects 50 million Chinese yuan (CNY), 44 million Indian rupees (INR) and 39 million Malaysian ringgit (MYR) proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange rates A$0.2447/CNY, A$0.043/INR and A$0.5791/MYR. Calculate the total Australian dollar (A$) cash flow for year-one. (enter the whole number with no sign or symbol) 2. Perth International anticipates a 5.06 per cent increase in the year-one income of its subsidiaries in year-two. It has information that the current 4.83 per cent, 8.76 per cent, 13.53 per cent and 11.08 per cent nominal interest rate in Australia, China, India and Malaysia, respectively, will remain the same in the next three years. Due to foreign currency higher nominal interest rate, subsidiaries will invest 23 per cent, 56 per cent and 45 per cent of their year-two earnings in China,…arrow_forwardVogl Co. is a U.S. firm conducting a financial plan for the next year. It has no foreign, subsidiaries, but more than half of it sale are form exports. Its foreign cash inflows to be received from exporting and cash outflow to be paid for imported supplies over the next year are shown n the following table: Currency total inflow total outflow Canadian dollar (C$) C $32,000,000 C $ 2,000,000 New Zealand dollar (NZ$) NZ $ 5,000,000 NZ $1,000,000 Mexican peso (MXP) MXP 11,000,000 MXP 10,000,000 Singapore dollar (s$) S$ 4, 000,000 8000,000 The spot rate and one-year forward rates as of today are shown below: Currency spot rate one-year forward rate C$ $.90 .93 NZ$ .60 .59 MXP .18 .15 S$ .65 .64 Questions 1. Based on the information provided, determine Vogl’s net exposure to each foreign currency in dollars. 2. Assume that today’s spot rate is used as a forecast of the future spot rate one year from now. The New Zealand dollar, Mexican peso, and Singapore dollars are expected to move in…arrow_forwardPerth International Co., an Australian multinational company, forecasts 63 million Australian dollars (A$) earnings next three years. It expects 50 million Chinese yuan (CNY), 44 million Indian rupees (INR) and 39 million Malaysian ringgit (MYR) proceeds of its three subsidiaries in year-one. It also forecasts the year-one exchange rates A$0.2447/CNY, A$0.043/INR and A$0.5791/MYR. Calculate the total Australian dollar (A$) cash flow for year-one. (enter the whole number with no sign or symbol) Perth International anticipates a 5.06 per cent increase in the year-one income of its subsidiaries in year-two. It has information that the current 4.83 per cent, 8.76 per cent, 13.53 per cent and 11.08 per cent nominal interest rate in Australia, China, India and Malaysia, respectively, will remain the same in the next three years. Due to foreign currency higher nominal interest rate, subsidiaries will invest 23 per cent, 56 per cent and 45 per cent of their year-two earnings in China, India…arrow_forward
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