You are the manager of a U.S. company situated in Los Angeles and manages the import/exportdivision of the company. The company distributes (resells) a variety of consumer products importedto the U.S.A from Europe and also exports goods manufactured in the U.S.A. to Canada.Therefore, your company is very much dependent an the impact of current and future exchangerates on the performance of the company.Scenario 1:You have to estimate the expected exchange rates between your home currency and the othercurrencies of the major other countries that you deal with in terms of bath imports and exparts. Thereason is that increases in the values of other currencies compared to the U.S. Dollar may impactyour imports negatively, whilst it may on the other hand, be good for exports. To do this estimate,you obtain the following spot exchange rate information:€/SCADS/S0.876161.30779You also obtain the following annual risk free rates applying in the countries:U.S.A.2.660%France0.500%Canada2.155%Your focus is presently to estimate the 3 month forward rates in order to consider the impact that itwill have on the import and export sales of the company. Calculate the forward rates of the $ interms of all the currencies by using simple interest rate parity eg. 10% annual interest rate = 10/2 =5% for six months. Do not effective annual interest rate compounding. Show all your workings intable 1 on the separate answer sheet by using the correct formula provided in your formula sheet.Provide an indication about what will happen to the value of the US$ based an the forwardexchange rate calculations by calkulating the expected discount/premium of it for each of thecurrencies in Table 2 on the separate answer sheet. Also show whether the impact will be positive{P| ar negative (N) for imports and exports. For example:Exchange% Discount/PremiumImportЕкроrtrateWarkings by youPositiveNegative=1.93% premium

Scenario 1)3months risk free rates:USA = 2.66%×3/12 USA = 0.665% France = 0.5%×3/12France = 0.125%…

Answered: major COL ason is that increases in the…

Business

Accounting

major COL ason is that increases in the val our imports negatively, whilst it au obtain the following spot exc

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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