Ch 18- Assignment - Multinational Financial ManagementiThe theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an idengood is the same when expressed in the same currency.A gaming console sells for $175.23 in the United States. The exchange rate between the U.S. dollar and the Swiss franc (SFr) is $0.8145 per SwisA-franc.Assuming that PPP holds true, how much does the same gaming console cost in Switzerland?SFr 225.90SFr 215.14SFr 247.41SFr 258.17N

Given, Price of gaming console in United States = $ 175.23Exchange rate = $ 0.8145 per swiss…

Answered: Ch 18- Assignment - Multinational…

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter8: Relationships Among Inflation, Interest Rates, And Exchange Rates

Section: Chapter Questions

Problem 32QA

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Match each term in Column A with its related definition in Column B. Column A 1. ____________ Spot rate 2. ____________ Currency appreciation 3. ____________ Translation risk 4. ____________ Transaction risk 5. ____________ Exchange rate Column B a. The rate at which one currency can be traded for another currency. b. The possibility that future cash transactions will be affected by changing exchange rates. c. A month ago, 1 U.S. was worth 8.5 Mexican pesos. Today, 1 is worth 9.0 Mexican pesos. The U.S. dollar has undergone what? d. The degree to which a firms financial statements are exposed to exchange rate fluctuation. e. The exchange rate of one currency for another for immediate delivery (today).
Question 9 Explain with the aid of a numerical example using the yen per dollar exchange rate assuming a spot exchange rate of 120 yen per dollar, a Japanese interest rate of 0.5% and dollar interest rate of 7% what is meant by a “carry trade” in the foreign exchange market. Make clear the break-even exchange rate of the strategy and the profits/losses at different exchange rate parities. Explain the profit and loss in both yen and dollars of the actual exchange rate in one year's time of 100 yen per dollar or 140 yen per dollar. Also state the break-even exchange rate in one year’s time of the strategy.
2. Foreign exchange rate quotations Aa Aa An exchange rate is the price of one country's currency expressed in another country's currency. Suppose an American investor is given the current exchange rates in the following table. The listed quotations are quotations stated in American terms. Exchange Rate British pound (£) $1.9760 / pound Euro (€ ) $1.4770 / euro Australian dollar (AU$) $0.9240 / Australian dollar Given these rates, an Australian dollar can purchase British pounds. Purple Whale Foodstuffs Inc. is a U.S.-based firm that produces stereos in Germany at a cost of € 124 (including production and transportation costs) and sells them in England for £ 102. Based on the exchange rate table given in the preceding question, what is Purple Whale Foodstuffs Inc.'s dollar profit for each unit sold? $20.24 $18.40 $19.32 $16.56
Question 4a) Differentiate between the different types of foreign exchange exposure that multinationalcompanies usually face when engaging in cross-border transactions b) Assume that the one-year interest rate is 3% (per annum) in the UK and 2% (per annum)in the Euro area. Also, assume that the current spot exchange rate of one pound to the eurois €1.1500/£ and that the corresponding one-year forward rate is €1.1400/£. i) Provide calculations to show whether the Interest Rate Parity (IRP) theory holds. ii) A UK-based investor has £200,000 to invest for a year either in the Euro area or the UK.Using the above information, determine which investment will generate a higher return for iii) Discuss the extent to which your results in i) and ii) above provide support to theCovered Interest Rate Parity (CIRP) condition.
Exercise 11-1 (Static) Exchange Rates LO 11-1 Suppose the direct foreign exchange rates in U.S. dollars are 1 British pound = 1 Canadian dollar = Required: a. What are the indirect exchange rates for the British pound and the Canadian dollar? b. How many pounds must a British company pay to purchase goods costing $8,000 from a U.S. company? c. How many U.S. dollars must be paid for a purchase costing 4,000 Canadian dollars? Required A $ 1.60 $ 0.74 Complete this question by entering your answers in the tabs below. Required B Required C What are the indirect exchange rates for the British pound and the Canadian dollar? Note: Round your answers to 4 decimal places. 1 USD 1 USD Answer is complete but not entirely correct. € 0.6250 British pounds $ 1.3510 Canadian dollars
32. Problem 8.40 (IFE, Cross Exchange Rates, and Cash Flows) Algo eBook Assume the Hong Kong dollar (HK$) value is tied to the U.S. dollar and will remain tied to the U.S. dollar. Assume that interest rate parity exists. Today an Australian dollar (A$) is worth $0.50 and HK$4.1. The one-year interest rate on the Australian dollar is 7 percent, while the one-year interest rate on the U.S. dollar is 9 percent. You believe in the international Fisher effect. You will receive A$1 million in one year from selling products to Australia, and will convert these proceeds into Hong Kong dollars in the spot market at that time to purchase imports from Hong Kong. Forecast the amount of Hong Kong dollars that you will be able to purchase in the spot market one year from now with A$1 million. Do not round intermediate calculations. Round your answer to the nearest dollar. HK$
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Question 37 Chicago based Corporation X has a number of exporting transactions with companies based in Sweden. Exporting activities result in receivables. If the settlement currency is the Swedish Krona, which of the following will happen by changes in the direct or indirect exchange rates? Direct Exchange Rate Indirect Exchange Rate Increases Decreases Increases Decreases A. Loss Gain NA NA B. Loss Gain Gain Loss C. NA NA NA NA D. Gain Loss Loss Gain Option A Option B Option C Option D
The law of one price The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency A scanner costs E65.45 in England. The spot rate is currently $2.0145 per pound. 0378 833037 Assuming that PPP holds true, what is the price of the scanner in the United States? O $38.99 O $32.49 $131.85 O $145.04 Suppose the price of the scanner in the United States was actually $145.04. Assuming no transaction costs, transportation costs, or import restrictions, what does PPP predict would happen to the demand for the scanner in the United States? O The demand for the scanner would decrease in the United States. O The demand for the scanner would increase in the United States.
6. Purchasing power parity Aa Aa The law of one price The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A scanner costs £65.45 in England. The spot rate is currently $1.9472 per pound. Assuming that PPP holds true, what is the price of the scanner D u NTO in the United States? 30378 $127.44 $38.65 $33.61 48330378 $101.95 ONFDD AR Suppose the price of the scanner in the United States was actually $140.18. Assuming no transaction costs, transportation costs, or import restrictions, what does PPP predict would happen to the demand for the scanner in the United States? The demand for the scanner would decrease in the United States. The demand for the scanner would increase in the United States.
The law of one price The theory of purchasing power parity (PPP) states that in the long-run exchange rates between two countries adjusts so that the price of an identical good is the same when expressed in the same currency. A scanner costs £65.45 in England. The spot rate is currently $1.8967 per pound. TUUZI Ⓡ 48330378 10000 $37.96 Assuming that PPP holds true, what is the price of the scanner in the United States? $124.14 O $39.69 $34.51 ONE DORALAR BUTICO 30378 Suppose the price of the scanner in the United States was actually $136.55. Assuming no transaction costs, transportation costs, or import restrictions, what does PPP predict would happen to the demand for the scanner in the United States? O The demand for the scanner would decrease in the United States. O The demand for the scanner would increase in the United States.
15.7A

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