Exchange rate

(China) and the Euro INTERNATIONAL FINANCIAL MANAGEMENT Case Questions and Answers 1. How significant an impact do foreign exchange gains and losses have on corporate performance at XJP? What is your opinion of how they structure and manage their currency exposures? During 2003, the dramatic raise in the value of Euro against the dollar resulted in foreign exchange losses of Rmb 75 billion, out of which Rmb 60 billion were charged as 2003 cost of hedging. The year of 2003 proved to be fortunate

DATE: 04/28/2012 TO: Dr. Gordon, Gus. FROM: Angelica Mendiola, Brittany Shepherd, Kiana Willis, and Terri Smith SUBJECT: SEWMEX: Short-Term Profit Planning in an International Setting SEWMEX is a newly formed sewing factory located in Mexico. SEWMEX, owned by an American company, is incorporated in Mexico as a Mexican company. By contract, the American parent company, SEW Inc. purchases all of SEWMEX’s output. SEW provides all raw materials to SEWMEX. The president of SEW is having suspicions

Renminbi (RMB) is the legal tender of the People’s Republic of China. The trade of RMB is booming internationally. It is now the ninth most traded currency in the world account for 2.2% of total foreign exchange turnover. In 2004, Hong Kong residents are allowed to deposit Renminbi into their bank account up to 20000 yuan per day (2100 pounds). In 2007, the first Renminbi denominated bond is issued in Hong Kong, called the dim sum bond. In the end of 2008, China allowed the trade using RMB between

(iyen-isf)/(1+isf) = (yen/sfF-yen/sfS)/yen/sfS (iyen – 0.1)/ (1+0.1) = (80-100)/100 (iyen-0.1)/1.1=-0.2 iyen-0.1=-0.2*1.1 iyen=-0.2*1.1+0.1 iyen=-0.12 = 12% When rate is 6% (iyen-isf)/(1+isf) = (yen/sfF-yen/sfS)/yen/sfS (0.06-0.1)/(1+0.1)= (80-100/100) -0.04/1.1=-20/100 -0.0364=-0.2 There is not equilibrium, therefore, the Yen interest rate is lower than franc and with 6% equilibrium can only be attained when yen increase by -0.0364 so as to can make higher yield returns as Swiss Franc in the forward

Prediction of the Dollar and Euro What is an exchange rate? Exchange rate is a price for that one country’s currency can be traded for another country’s currency, which involves always two currencies. The price of a currency is determined by the country’s currency’s demand relative to its supply in the market. Furthermore, there are many factors that impact exchange rates but the most influential factors are inflation rates, interest rates, income levels, government controls, and expectations. Due

will have impacts on bilateral trade activities. Hence, the U.S. trade balances are related to both country’s income, the exchange rate and trade policies. For the case of China and the U.S., we will only explore the

Groupe Ariel SA: Parity Conditions and Cross-Border Valuation Hints to case study questions: 1. Compute the NPV of Ariel-Mexico's recycling equipment in pesos by discounting incremental peso cash flows at a peso discount rate. How this NPV should be translated into Euros? Assume expected future inflation for France is 3% per year. 1.1. Review principles of estimating project cash flows. Suggested reading: Ch. 9 “Capital Budgeting and Cash Flow Analysis” in “Contemporary Financial

financial management process. In this case study, the concepts discussed include reasons for global expansions, the major factors that differentiates the financial management practices of multinational corporations from purely domestic firms, exchange rates and convertibility of currencies, international monetary systems, and international capital markets. Also, the differences in the average capital structure across different countries, the problems faced by nultinational firms in capital budgeting

purchase price was $500,000,000, which was payable in U.S. dollars on delivery of the aircrafts in one year. Chairman Ruhnau chose a partial cover by hedging 50% of the exposure with forward contracts, which was $250 million at the one year forward rate of DM3.2/$. He left the remaining 50% ($250 million) uncovered. Due to this decision, Lufthansa paid DM225,000,000 more than if Ruhnau would have

INTERNATIONAL BUSINESS ENVIRONMENT The international business environment can be defined as the environment in different sovereign countries, with factors exogenous to the home environment of the organization, influencing decision making on resource use and capabilities. The business environment is the sum total of all external and internal factors that influence a business. One must keep in mind that external factors and internal factors can influence each other and work together to affect a business