Gilbert Company, and MNC that has a subsidiary in Mexico, wants to figure out the maximum one-quarter loss due to a potential decline in the Mexican peso'svalue. Assume that Gilbert believes the expected percentage change in the Mexican peso is -1% during the next quarter, the maximum one-quarter loss is about1.65 standard deviations away from the expected percentage change in the US. dollar, and that Gilbert estimated the standard deviation of exchange ratemovements of the Mexican peso to be 6 percent over the next 40 quarters. Based on these assumptions, Gilbert's maximum expected one quarter loss due to itstransaction exposure in Mexican pesos over the next quarter is:O S%O 10.9%O 10.9%

There are change in the exchange rate due to which there high fluctuations in value of goods and…

Answered: change in the Mexican peso is 1% during…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that exchange rate between the dollar and the peso is in equilibrium when inflation in the U.S. rises to 5.00%. At the same time, inflation in Mexico is 3.50%. If the inflation rate in the U.S. is denoted as I and the inflation rate in Mexico is If, then which of the following expressions represents the percent change in the peso under PPP? 1+If 1+In 1+In 1+1 - - 1 1 0.0145 -1.43% 1+/ +1 1+1 198.57% 1+If 1+1h +1 201.45% According to this formula, percentage change in the peso should be under PPP.
Chapman, Inc.'s Mexican subsidiary, V. Gomez Corporation, is expected to pay to Chapman 50 pesos in dividends in 1 year after all foreign and U.S. taxes have been subtracted. The exchange rate in 1 year is expected to be $0.12 per peso. After this, the peso is expected to depreciate against the dollar at a rate of 5% a year forever due to the different inflation rates in the United States and Mexico. The peso-denominated dividend is expected to grow at a rate of 10% a year indefinitely. Chapman owns 10 million shares of V. Gomez. What is the present value of the dividend stream, in dollars, assuming V. Gomez's cost of equity is 12%? Do not round intermediate calculations. Round your answer to the nearest dollar
Suppose that one year ago the spot rate for the British pound was $1.68 per pound, while the spot rate for the peso was $1.05 per peso. The cross rate of the British pound one year ago was £1 = pesos. Suppose that now the spot rate for the British pound is $2.00 per pound, while the spot rate for the peso was $1 per peso. Now, the cross rate of the British pound is £1 = pesos. This represents a percent change in the cross rate of the British pound.
Today, each US Dollar can be exchanged for LLL 2.84 in LaLaLand. There is a general belief that three years from now the exchange rate will change to LLL 2.92. This information allows you to find the difference, each year, between the expected inflation rates between the USA and LaLaLand over the next three years. What is it? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Difference in annual inflation rates %
In Japan, Honda’s export price per vehicle was 5 million yen when the exchange rate was 125 yen per US dollar ($). The expected inflation rate in the Japanese yen for next year is 1%. The standard inflation rate in the US is 3%. Honda is actively trying to limit the passing exchange rate changes in prices to 60% of annual changes (i.e., if, for example, the US dollar depreciates by 10% against the yen, Honda will consider depreciation of the US dollar by only 6% (=0.60*10%) to calculate the new prices of its vehicles in US dollars). What was the price in $ of a Honda at the beginning of the year? Considering purchasing power parity, what would be the expected exchange rate between the yen and the US dollar at the end of the year Assuming Honda wants to pass 60% of exchange rate changes to the vehicle price, what would be the price of a Honda vehicle at the end of next year in US dollars ($)?

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