a. Bing Ltd a UK based company is due to pay 80 million Lira to Google Ltd. The spot rate is Lira 2,400/£. Interest rates for the next year are expected to be 8% in the UK and 20% in Italy. Required: Assume the International Fisher Effect is valid, evaluate the effect on the sterling cost of this transaction if Bing Ltd delay payments by one year. b. Hilton a US based Multinational Company will receive 2,000,000 Euros in one year time from items it exported. It did not hedge this transaction; Hilton believes that the future value of the Euro will be determined by Purchasing Power Parity (PPP). It expects that inflation in countries using Euro will be 12% next year, while inflation in the US will be 7% next year. The spot rate of Euro is $ 1.46 and the one-year forward rate is $1.50 Required: a. Estimate the amount of US dollars that Hilton will receive in the one year when converting its Euro receivables into US dollar b. The spot rate of the Australian dollar is pegged at $ 0.13. Hilton believes that the Australian dollar will remain pegged to the US dollar for the next year. If Hilton decides to convert its 2 million Euros into Australian dollar instead of US dollars at the end of one year, estimate the amount of Australian dollars that Hilton will receive in one year when converting its Euro receivables into Australian dollars.
1 a. Bing Ltd a UK based company is due to pay 80 million Lira to Google Ltd. The spot rate is Lira 2,400/£. Interest rates for the next year are expected to be 8% in the UK and 20% in Italy.
Required: Assume the International Fisher Effect is valid, evaluate the effect on the sterling cost of this transaction if Bing Ltd delay payments by one year.
b. Hilton a US based Multinational Company will receive 2,000,000 Euros in one year time from items it exported. It did not hedge this transaction; Hilton believes that the
The spot rate of Euro is $ 1.46 and the one-year forward rate is $1.50
Required:
a. Estimate the amount of US dollars that Hilton will receive in the one year when converting its Euro receivables into US dollar
b. The spot rate of the Australian dollar is pegged at $ 0.13. Hilton believes that the Australian dollar will remain pegged to the US dollar for the next year. If Hilton decides to convert its 2 million Euros into Australian dollar instead of US dollars at the end of one year, estimate the amount of Australian dollars that Hilton will receive in one year when converting its Euro receivables into Australian dollars.
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