PRINCIPLES OF CORPORATE FINANCE
13th Edition
ISBN: 9781264052059
Author: BREALEY
Publisher: MCG
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Chapter 27, Problem 9PS
Summary Introduction
To discuss: Person F suggests that the company should make an issue of Country J yen bonds and whether it makes sense.
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A bank dealing in foreign currency tells you that the foreign currency will buy you $.80 US dollars. The bank has given you
a.
a direct quote.
b.
an indirect quote.
c.
the official (fixed) rate.
d.
a forward rate.
What is a eurodollar? If a French citizen deposits $10,000 in Chase Manhattan Bank in NewYork have eurodollars been created? What if the deposit is made in Barclay’s Bank in London?In Chase Manhattan’s Paris branch? Does the existence of the eurodollar market make theFederal Reserve’s job of controlling U.S. interest rates easier or more difficult? Explain.
Finance
What do we call foreign stocks that are bought and sold in the U.S. that are also priced in U.S. dollars? What are these stocks called?
Multiple Choice
There is no such thing. Foreign stocks must be purchased using that countries foreign currency.
They are called SDRs.
They are called American Depository Receipts (ADRs)
Thev are called U.S. Foreign Dollar Certificates (USDCs).
Detail explaination
Chapter 27 Solutions
PRINCIPLES OF CORPORATE FINANCE
Ch. 27 - Exchange rates Look at Table 27.1. a. How many...Ch. 27 - Exchange rates Table 27.1 shows the 3-month...Ch. 27 - Prob. 3PSCh. 27 - Prob. 4PSCh. 27 - Prob. 5PSCh. 27 - Prob. 6PSCh. 27 - Prob. 8PSCh. 27 - Prob. 9PSCh. 27 - Prob. 10PSCh. 27 - Currency risk Companies may be affected by changes...
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- Suppose the Japanese yen exchange rate is ¥116/$ and the British pond exchange rate is $1.27/£. a) What is the yen to pound cross-rate? b) Suppose that a bank gives you a quote of ¥156/£. Is there an arbitrage opportunity here? If so, explain how to take advantage of the mispricing.arrow_forward2.) Pound 0.64/$ in London, 1.04/Euro in New York, and Pound 0.64/Euro in Frankfurt. Depending on this information, how do you think you can make a profit by trading currency in the given monetary centers? calculate your profit by explaining transactionsarrow_forwardIf a French citizen deposits $10,000 in Chase Bank inNew York, have Eurodollars been created? What if the deposit is made inBarclays Bank in London? Chase’s Paris branch? Does the existence of theEurodollar market make the Federal Reserve’s job of controlling U.S. interest rates easier or more difficult? Explain.arrow_forward
- International Finance (chapter 21) Question Explain how each of the following will affect the relative values of the dollar and the French franc: Income growth higher in the United States than in France. Inflation higher in France than in the United States. A real interest rate higher in the United States than in France PLease solve 1arrow_forwardGiven the interest rates of the U.S. and Japan are similar but the Japanese yen is expected to appreciate against the U.S. dollar, you would choose to borrow ____ and investing in ____. A. yen; dollars B. dollars; dollars C. yen; yen D. dollars; yenarrow_forwardH3. The Central Bank of the Bahamas pegs the Bahamian Dollar to the United States Dollar at a price of 1 BSD per USD. As an analyst for XYZ Consulting Inc., you have been asked to predict the behavior of key macroeconomic variables in the Bahamas for different policy scenarios. Using all the appropriate diagrams, your analysis must describe the Bahamian money and output markets, as well as the foreign exchange market. To perform this task, you must assume that prices are sticky: fixed in the short-run and flexible in the long-run. The scenarios are: a) A temporary restrictive monetary policy in the Bahamas. b) A temporary restrictive fiscal policy in the Bahamas.arrow_forward
- DePaul International Bank is a U.S. bank that wants to speculate on the dollar-euro exchange rate. A euro (€) costs $1.08 today. The bank expects it to cost $1.12 in 4 months. Current annual interest rates are as follows: Currency Borrowing rate Lending rate Euro 4.8% 4.1% U.S. dollar 7.5% 6.6% The bank doesn't want to use any of its own money, but could borrow either $10,000,000 or €10,000,000. Assume there are 30 days in every month and 360 days per year. Ignore compounding when working with the interest rates. Part 1 What is the expected profit from the trade after 4 months (in $)?arrow_forwardSuppose the going one year interest rate in the U.S. is 3% while it is 1% in the Japan. Furthermore, the going exchange rate is 110 Japanese yen/ U.S. dollar. What is the effective financing rate in the U.S. from borrowing in Japan? -2% 2% 1% Not enough information is provided.arrow_forwardGiven the interest rates in the U.S. and Canada are similar, if the Canadian dollar is expected to appreciate against the U.S. dollar, banks are most likely speculating on this anticipated exchange rate movement by borrowing ____ and investing in ____. A. dollars; Canadian dollar B. Canadian dollar; dollars C. Canadian dollar; Canadian dollar D. dollars; dollarsarrow_forward
- 2. The Australian dollar - Japanese Yen exchange rate is currently given by $A 1= Yen 100. Australian Government 1-year bond rates are 2% while Japanese Government 1-year bond rates are 0.5%. Everything else being equal, Japanese currency investors should, a. Buy the $A, sell Japanese Government bonds and buy Japanese Yen b. Buy the $A, buy Japanese Government bonds and sell Japanese Yen c. Sell the $A, sell Australian Government bonds and buy Japanese Yen d. Sell the $A, buy Australian Government bonds and buy Japanese Yenarrow_forwardA bank is quoting the following exchange rates against the dollar for the Swiss franc and the Australian dollar: SFr/$ = 1.5960 − 70 A$/$ = 1.7225 − 35 An Australian firm asks the bank for an A$/SFr quote. What cross-rate would the bank quote?arrow_forwardInternational Finance (chapter 21) Question: Classify each of the following as debits or credits in the U.S. balance of payments. Americans buy chocolate from the Swiss. U.S. gives foreign aid to Bosnia. British investors purchase U.S. government bonds American tourists travel to Australia Volkswagen earns profits in the United States from its new cars Toyota builds a new plant in Ohio Capital Records sells rock and roll music in Swedenarrow_forward
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