MULTINATIONAL FINANCIAL MANAGEMENT Yohe Telecommunications is a multinational corporation that produces and distributes telecommunications technology. Although its corporate headquarters are located in Maitland, Florida, Yohe usually buys its raw materials in several different foreign countries using several different foreign currencies. The matter is further complicated because Yohe often sells its products in other foreign countries. One product in particular, the SY-20 radio transmitter, draws Component X, Component Y, and Component Z (its principal components) from Switzerland, France, and the United Kingdom, respectively Specifically, Component X costs 165 Swiss France, Component Y costs 20 euros, and Component Z costs 105 British pounds. The largest market for the SY-20 is japan, where the product sells for 50,000 Japanese yen. Naturally, Yohe is intimately concerned with economic conditions that could adversely affect dollar exchange rates. You will find Tables 19.1, 19.2, and 19.3 useful for completing this problem. a. How much in dollars does it cost Yohe to produce the SY-20? What is the dollar sale price of the SY-20? b. What is the dollar profit that Yohe makes on the sale of the SY-20? What is the percentage profit? c. If the U.S. dollar was to Weaken by 10% against all foreign currencies, what would be the dollar profit for the SY-20? d. If the U.S. dollar was to weaken by 10% only against the Japanese yen and remained constant relative to all other foreign currencies, what would be the dollar and percentage profits for the SY-20? e. Using the 180-day forward exchange information from Table 19.3, calculate the return on 1-year securities in Switzerland assuming the rate of return on l·year securities in the United States is 4.9%. f. Assuming that purchasing power parity (PPP) holds, what would be the sale price of the SY-20 if it was sold in the United Kingdom rather than Japan?

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Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250
BuyFind

Fundamentals of Financial Manageme...

15th Edition
Eugene F. Brigham + 1 other
Publisher: Cengage Learning
ISBN: 9781337395250

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Chapter
Section
Chapter 19, Problem 18SP
Textbook Problem

MULTINATIONAL FINANCIAL MANAGEMENT Yohe Telecommunications is a multinational corporation that produces and distributes telecommunications technology. Although its corporate headquarters are located in Maitland, Florida, Yohe usually buys its raw materials in several different foreign countries using several different foreign currencies. The matter is further complicated because Yohe often sells its products in other foreign countries. One product in particular, the SY-20 radio transmitter, draws Component X, Component Y, and Component Z (its principal components) from Switzerland, France, and the United Kingdom, respectively Specifically, Component X costs 165 Swiss France, Component Y costs 20 euros, and Component Z costs 105 British pounds. The largest market for the SY-20 is japan, where the product sells for 50,000 Japanese yen. Naturally, Yohe is intimately concerned with economic conditions that could adversely affect dollar exchange rates. You will find Tables 19.1, 19.2, and 19.3 useful for completing this problem.

  1. a. How much in dollars does it cost Yohe to produce the SY-20? What is the dollar sale price of the SY-20?
  2. b. What is the dollar profit that Yohe makes on the sale of the SY-20? What is the percentage profit?
  3. c. If the U.S. dollar was to Weaken by 10% against all foreign currencies, what would be the dollar profit for the SY-20?
  4. d. If the U.S. dollar was to weaken by 10% only against the Japanese yen and remained constant relative to all other foreign currencies, what would be the dollar and percentage profits for the SY-20?
  5. e. Using the 180-day forward exchange information from Table 19.3, calculate the return on 1-year securities in Switzerland assuming the rate of return on l·year securities in the United States is 4.9%.
  6. f. Assuming that purchasing power parity (PPP) holds, what would be the sale price of the SY-20 if it was sold in the United Kingdom rather than Japan?

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Chapter 19 Solutions

Fundamentals of Financial Management (MindTap Course List)
Ch. 19 - Why do U.S. corporations build manufacturing...Ch. 19 - If the euro depreciates against the U.S. dollar,...Ch. 19 - If the United States imports more goods from...Ch. 19 - Should firms require higher rates of return on...Ch. 19 - Does interest rate parity imply that interest...Ch. 19 - Why might purchasing power parity fail to hold?Ch. 19 - What is a eurodollar? If a French citizen deposits...Ch. 19 - EXCHANGE RATE If British pounds sell for 1.30...Ch. 19 - CROSS RATE A currency trader observe that in the...Ch. 19 - INTEREST RATE PARITY Six-month T-bills have a...Ch. 19 - PURCHASING POWER PARITY A television costs 750 in...Ch. 19 - EXCHANGE RATES Table 19.1 lists foreign exchange...Ch. 19 - EXCHANGE RATES Use the foreign exchange section of...Ch. 19 - CURRENCY APPRECIATION Suppose that 1 Danish krone...Ch. 19 - CROSS RATES Suppose the exchange rate between the...Ch. 19 - CROSS RATES Use the foreign exchange section of a...Ch. 19 - INTEREST RATE PARITY Assume that interest rate...Ch. 19 - PURCHASING POWER PARITY In the spot market, 17.6...Ch. 19 - INTEREST RATE PARITY Assume that interest rate...Ch. 19 - SPOT AND FORWARD RATES Arvin Australian Imports...Ch. 19 - EXCHANGE GAINS AND LOSSES You are the vice...Ch. 19 - RESULTS OF EXCHANGE RATE CHANGES Early in June...Ch. 19 - FOREIGN INVESTMENT ANALYSIS After all foreign and...Ch. 19 - FOREIGN CAPITAL BUDGETING Sandrine Machinery is a...Ch. 19 - MULTINATIONAL FINANCIAL MANAGEMENT Yohe...Ch. 19 - MULTINATIONAL FINANCIAL MANAGEMENT Citrus Products...

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