International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Assessing Transaction Exposure
Your employer, a large MNC, has asked you to assess its transaction exposure. Its projected cash flows are as follows for the next year. Danish krone inflows equal DK50,000,000 while outflows equal DK40,000,000. British pound inflows equal £2,000,000 while outflows equal £1,000,000. The spot rate of the krone is $.15, while the spot rate of the pound is $1.50. Assume that the movements in the Danish krone and the British pound are highly correlated. Provide your assessment as to your firm’s degree of transaction exposure (as to whether the exposure is high or low).
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
FOREIGN CAPITAL BUDGETING Sandrine Machinery is a Swiss multinationalmanufacturing company. Currently, Sandrine’s financial planners are consideringundertaking a 1-year project in the United States. The project’s expected dollardenominated cash flows consist of an initial investment of $2,000 and a cash inflow thefollowing year of $2,400. Sandrine estimates that its risk-adjusted cost of capital is 10%.Currently, 1 U.S. dollar will buy 0.94 Swiss franc. In addition, 1-year risk-freesecurities in the United States are yielding 3%, while similar securities in Switzerlandare yielding 1.50%.a. If this project was instead undertaken by a similar U.S.-based company with the samerisk-adjusted cost of capital, what would be the net present value and rate of returngenerated by this project?b. What is the expected forward exchange rate 1 year from now?c. If Sandrine undertakes the project, what is the net present value and rate of return of theproject for Sandrine?
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