A German MNC, exports to, and imports from Australia. The MNC has accounts receivable totaling AUD178 million, accounts payable of AUD183 million and AUD-denominated debt of AUD95 million. Its transaction exposure denominated in Euros is: O a EUR90 million O b. -EUR100 million Oc None of the options in this question are correct O d. EUR266 million

A German MNC, exports to, and imports from Australia. The MNC has accounts receivable totaling AUD178 million, accounts payable of AUD183 million and AUD-denominated debt of AUD95 million. Its transaction exposure denominated in Euros is: O a EUR90 million O b. -EUR100 million Oc None of the options in this question are correct O d. EUR266 million

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter7: Financial Activities

Section: Chapter Questions

Problem 2EIC

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An Australia based company takes a US$1 million £ variable rate loan in the United Kingdom at LIBOR + 2%. Identify the risks on this financial transaction Identify possible ways to manage the associated risk.Describe ways to hedge FX risk onlyDescribe ways to hedge both Interest Rate Risk and FX risks.
Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months. What is the expected value of payables in AUD under hedge?
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Peter Sheffield has Euros (€) amounting to €500,000 and is provided with the following quotes: Bank A: Euro/US dollar = €0.8418/$ Bank A: British pound /US dollar = £0.7538/S Bank B: British pound/Euro = £0.8863/€ Determine whether an arbitrage opportunity exists. Show your calculation in the space below and briefly explain (in one or two sentences) why the arbitrage opportunity exists or not. For example, show your calculation as follows (The currencies used in the example are not applicable to your calculation. It just provide you with information how you should show your calculation): Yen/ZAR = 11.7654/1.3954 = 8.4316 (Round your answer to 4 decimals) Reason why arbitrage opportunity exists/ does not exist:
Assume that a bank has assets located in Germany worth €390 million earning an average of 6 percent. It also holds €190 in liabilities and pays an average of 4 percent per year. The current spot rate is €1.50 for $1. If the exchange rate at the end of the year is €2.00 for $1: a. What happened to the dollar? Did it appreciate or depreciate against the euro (€)?b. What is the effect of the exchange rate change on the net interest margin (interest received minus interest paid) in dollars from its foreign assets and liabilities?c. What is the effect of the exchange rate change on the value of the assets and liabilities in dollars?
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