International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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A U.S. exporter has a Thai baht account receivable resulting from an export sale on June 1 to a customer in Thailand. The exporter signed a forward contract on June 1 to sell Thai baht and designated it as a cash flow hedge of a recognized Thai baht receivable. The spot rate was $0.022 on that date, and the forward rate was $0.021. Which of the following did the U.S. exporter report in net income?a. Discount expenseb. Discount revenuec. Premium expensed. Premium revenue
Explain how a U.S. corporation could hedge net receivables in Malaysian ringgit with a forward contract. Explain how a U.S. corporation could hedge payables in Canadian dollars with a forward contract.
The ABC Corporation is a U.S. exporter that invoices its exports to the United Kingdom in British pounds. If it expects that the pound will depreciate against the dollar in the future, should it hedge its exports with a forward contract? Explain.
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- Suppose that Salem Co, a U.S.-based MNC that both purchases supplies from Canada and sells exports in Canada, is seeking to measure the economic exposure of its cash flows. Salem wishes to analyze how its cash flows might change under different exchange rates for the Canadian dollar (the only foreign currency in which it deals). Salem believes that the value of the Canadian dollar will be $0.70, $0.75, or $0.80, and seeks to analyze its cash flows under each of these scenarios. The following table shows Salem’s cash flows under each of these exchange rates. Use the table to answer the question that follows. Exchange Rate Scenario Exchange Rate Scenario Exchange Rate Scenario C$1=$0.70 C$1=$0.75 C$1=$0.80 (Millions) (Millions) (Millions) Sales (1) U.S. Sales $315 $315 $315 (2) Canadian Sales $3.50 $4.00 $4.00 (3) Total Sales in U.S. $ $318.50 $318.75 $319.00 Cost of Materials and Operating Expenses (4)…arrow_forwardAssume a Japanese company, Ascent Robotics, sells its equipment to a U.S. client invoicing half of the bill in yen and the remaining half in U.S. dollars. Which type of hedging through invoice currency does this situation represent? Shifting exchange exposure Money market hedge Sharing exchange exposure Diversifying exchange exposurearrow_forwardABC Company has the Philippine peso as its functional currency. The entity expects to purchase goods from USA for $50,000 on March 31, 2023. Accordingly, the entity is exposed to a foreign currency risk. If the dollar increases before the purchase takes place, the entity will have to pay more pesos to obtain the $50,000 that it will have to pay for the goods. On October 1, 2022, the entity entered into a foreign currency forward contract with a bank speculator to purchased $50,000 in six months for a fixed amount of P2,050,000 or P41 to $1. This forward contract is designated as cash flow hedge of the entity’s exposure to increase in dollar exchange rate. On December 31, 2022, the exchange rate is P42 to $1 and on March 31, 2023, the exchange rate is P44 to $1. How much is the derivative asset (liability) on October 1, 2022?arrow_forward
- A U.S.-based MNC has a subsidiary in Malaysia that generates substantial net cash inflows denominated in Ringgit Malaysia. Given this information, the MNC would ____ from a ____ of the Ringgit Malaysia. A. benefit; appreciation B. not benefit; depreciation C. benefit; depreciation D. not benefit; appreciationarrow_forwardAssume that a German corporation exports electronic equipment to USA in a transaction denominated in dollar. Is this transaction a foreign currency transaction? Is it a foreign transaction? Explain the difference between these two concepts and their application here.arrow_forwardGrace Co. had a Chinese yuan payable resulting from imports from China and a Mexican peso receivable resulting from exports to Mexico. Grace recorded foreign exchange losses related to both its yuan payable and peso receivable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?arrow_forward
- If Blades does not enter into the agreement with the British firm and continues to export to Thailand and import from Thailand and Japan, do you think the increased correlations between the Japanese yen and the Thai baht will increase or decrease Blades’ transaction exposure?arrow_forwardAssume that a U.S. company has a foreign subsidiary whose functional currency is the U.S. dollar. Explain how exchange rates between the foreign currency and the dollar would have to change in order to result in a current-year remeasurement loss and how the company could use a foreign currency loan receivable or payable to hedge against its net investment in the foreign subsidiary.arrow_forwardPlease Do not copy other , answers should be unique. Thank you! The Export-Import Bank of the United States subsidizes the foreign purchase of certain U.S. manufactured goods by offering to finance the foreign purchases at below-market interest rates. For example, suppose a foreign commercial airline agrees to purchase four commercial jet airplanes from Boeing for $400 million. Assume the foreign airline can borrow the $400 million at 6 percent using private financing to be repaid in equal annual payments over 15 years. If the U.S. Export-Import Bank offers to loan the $400 million at 4 percent, to be repaid in equal annual installments over 15 years, what is the present-value-equivalent amount of this subsidy to the foreign airline? Note : Please answer it using the Present capital values of Annuityarrow_forward
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