International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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INTERNATIONAL BUSINESS AND TRADE
Mini-Case Synopsis and Questions
In 2008 and 2009, international financial markets suffered large declines in stock, bond, and real estate prices. Due to excessive government spending and related borrowing, Greece experienced a debt crisis that worsened after the introduction of the euro. To head off default, the Troika provided Greece a bailout in 2012. Some experts believe Greece should exit the euro entirely, but others argue that if other countries follow Greece, the euro and the EU itself could be seriously damaged.
Questions:
How did Greece get into trouble with its government debt? Did joining the Eurozone help them pay rising government debts? Explain your answers.
Should Greece exit the euro? How would it benefit? What could go wrong? Explain your answers.
Foreign Exchange Risk and the Cost of Borrowing Swiss Francs. The chapter demonstrated that a firm borrowing in a foreign currency could potentially end up paying a very different effective rate of interest than what it expected. Using the same baseline values of a debt principal of SF 1.6 million, a one-year period, an initial spot rate of SF 1.4600/$, a 4.934% cost of debt, and a 38% tax rate, what is the effective after-tax cost of debt for one year for a U.S. dollar-based company if the exchange rate at the end of the period was:
a. 1.4600SF/$
b. 1.4000SF/$
c. 1.3350SF/$
d. 1.5730SF/$
The current Venezuelan political and economic crisis deepened in late 2015. On September 30th, 2015, Venezuela’s currency the Bolivar was trading at S(Bolivar/Dollar) = 800; one month earlier it was S(Bolivar/Dollar) = 684. Many currency forecasters were predicting that the Bolivar would fall an additional 70% from its September 30th value by the end of 2015.
Required :
What was the percentage change in the value of the Bolivar relative to the US dollar during September 2015?
What was the forecast Bs/$ exchange rate for end 2015?.
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