International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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A Brazillian coffee exporter has found a market for his coffee to the tune of 1,800,000 Euros. At the time of sale, the spot rate between Kenya shillings and Euros was ksh 126/Euro. The payment was expected after one month when the deal would be concluded. The interest rates in Kenya were 9% while in Germany they were 7%.per annum
Required:
1. Advise the exporter after ascertaining the domestic currency appreciation or depreciation.
2. Suggest plausible non-financial hedging techniques to shield the exporter
Jupiter Engine Company has recently negotiated contracts to sell 1 of its X-model engines to a customer in England and 1 of its Z-model engines to a customer in Germany. Jupiter will be paid in 3 months in the currency of its customers.
The engine selling prices are:
X-model 200,000 British pounds
Z-model 265,500 Euros
Jupiter’s costs to produce each engine in US dollars:
X-model $225,000
Z-model $270,000
Today’s exchange rates:
GBpound/US$ 1.20
US$ /Euro 0.90
Calculate Jupiter’s profits from each engine sale, based on today’s exchange rates.
(Profit = Price in US dollars - costs in US dollars)
Jupiter will not actually be paid for 3 months. If they choose not to hedge themselves against currency fluctuations by locking in today’s rate, they will either make less or more profit based on changes in the exchange rate.
Would they prefer to see the US dollar get STRONGER or WEAKER during this period?…
An importer in Oman wants to exchange OMR to EUR which he will be Paying to an exporter after 3 months. He goes to a forex dealer in Oman who provides the following quotes for OMR/EUR
Spot rate =0.460727-927
3 months rate = 0.480827-997
How much OMR will the importer pay in to receive 75000 Euros after 3 months?
a.
All the options are wrong
b.
34569.53
c.
36062.03
d.
34554.53
e.
36074.78
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- Weyerhauser is a US based forest products firm In June Weyerhauser delivers a shipment of raw lumber to Japan The y55,000,000 receivables is due 180 days The firm’s foreign exchange advisors believe the yen will be at about y115/$ then, Current spot rate is y110/$ Weyerhauser has received 180 day forward quote of y108/$ If the company does nothing and the exchange rate goes to y115 as expected How much will the firm receive in dollars in 180 days? Is this cash flow risky or known with certainly today?arrow_forwardA U.S. firm buys merchandise from a Portuguese company at a cost of EUR 250,000. The merchandise will not be delivered for six months and the U.S. firm does not have to pay for the product until it’s delivered. The current EURUSD exchange rate is 1.0500 U.S. dollars per euro. If the EURUSD exchange rate moves to 1.1500 in six months, when the U.S. firm finally needs to make the payment, will the U.S. firm be paying more or less for the merchandise in U.S. dollar terms?arrow_forwardJ&D produces kindles in the Euro area and exports them to the United States. Last year the exchange rate was $1.20/Euro and J&D charged 130 Euros per kindle in the Euro area and $140 per kindle in the United States. Currently the spot exchange rate is $1.45/Euro and J&D is charging $158 per kindle. Calculate the degree of pass-through by J&D on their kindles and interpret your findings.A. The degree of pass-through is 0.6171. Therefore, only 38.29% of the exchange rate change was passed through to the U.S. dollar price. B. The degree of pass-through is 0.3829. Therefore, only 38.29% of the exchange rate change was passed through to the U.S. dollar price.C. The degree of pass-through is 0.6171. Therefore, only 61.71% of the exchange rate change was passed through to the U.S. dollar price. D. The degree of pass-through is 0.71. Therefore, only 71% of the exchange rate change was passed through to the U.S. dollar price. The remaining 29% has been absorbed by the company.arrow_forward
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