Question 4 What is the NPV of the investment from the parent's perspective? You work for a firm whose home currency is the Swiss franc (CHF) and that is considering a foreign investment. The investment yields expected after-tax British pound (GBP) cash flows (in millions) as follows: Year 0 -GBP900 Year 1 GBP400 Year 2 GBP400 Year 3 GBP400 Expected inflation is 13.0% in the Swiss franc and 6.0% in the British pound. Required returns for projects in this risk class are: . ¡CHF = 19.3% in the Swiss franc; and • ¡GBP = 22.3% in the British pound The spot exchange rate is ŞCHF/GBP = CHF 1.4206/GBP.

Question 4 What is the NPV of the investment from the parent's perspective? You work for a firm whose home currency is the Swiss franc (CHF) and that is considering a foreign investment. The investment yields expected after-tax British pound (GBP) cash flows (in millions) as follows: Year 0 -GBP900 Year 1 GBP400 Year 2 GBP400 Year 3 GBP400 Expected inflation is 13.0% in the Swiss franc and 6.0% in the British pound. Required returns for projects in this risk class are: . ¡CHF = 19.3% in the Swiss franc; and • ¡GBP = 22.3% in the British pound The spot exchange rate is ŞCHF/GBP = CHF 1.4206/GBP.

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 the assets of a bank consist of $100 million of loans of BBB-rated corporations. The PD for the corporations is estimated as 1%. The average maturity is five years and the LGD is 60%. What is the total risk-weighted assets for credit risk under the Basel II advanced IRB approach? Question 5Answer a. $178.1 million b. $13.2 million c. $165.4 million d. $100 million
swered Answer Jensen Aquatics Inc., which manufactures and sells scuba gear worldwide, is considering an investment in either Europe or Great Britain. Consider the following cash flows for each project, assume a 12% wacc, and consider these to be average risk projects for the firm. Answer the questions that follow. Britain Total cash inflows (E) Total cash outflows (6) Additional dollar cash inflows (5) Forecast exchange rate (S/E) Europe Total cash inflows (€) Total cash outflows (0) Additional dollar cash inflows (5) Forecast exchange rate (S/E) euro 4,945 $4,945 $6,420 Year 0 (Today) euro 6,420 0 15,000 0 1.50 0 20,000 0 1.00 Refer to Table 16.1. The NPV for the European investment is estimated at Year 1 8000 1000 500 1.46 12,000 1500 500 0.96 Year 2 8000 1000 500 1.45 12.000 1500 500 0.94 Year 3 8000 1000 500 1.44 12.000 1500 500 0.92
Assume the following information: 90-day U.S. interest rate 90-day Malaysian interest rate 3% 5% 90-day forward rate of Malaysian ringgit Spot rate of Malaysian ringgit $0.394 $0.398 Assume that the Santa Barbara Co. in the United States will need 250,000 ringgit in 90 days. It wishes to hedge this payables position. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge. Do not round intermediate calculations. Round your answers to the nearest dollar. The firm will pay out $ in 90 days if it uses the forward hedge and $ if it uses the money market hedge. Thus, it should use the -Select- hedge.
Calculate the contribution to total performance from currency, country, and stock selection for the manager in the example below. All exchange rates are expressed as units of foreign currency that can be purchased with 1 U.S. dollar. Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Input all amounts as positive values. Return on EAFE Weight Equity Index E1E0 Manager's Weight Manager's Return Europe Australasia Far East 0.2 19% 0.80 0.11 16% 0.6 15 1.10 0.40 19 0.2 24 1.00 0.49 19 Currency Selection Country Selection Stock Selection % % % Profit or Loss relative to EAFE relative to EAFE relative to EAFE
Smart Banking Corp. can borrow $5 million at 6 percent annualized. It can use theproceeds to invest in Canadian dollars at 9 percent annualized over a 6-day period. TheCanadian dollar is worth $.95 and is expected to be worth $.94 in 6 days. Based on thisinformation, should Smart Banking Corp. borrow U.S. dollars and invest in Canadiandollars? What would be the gain or loss in U.S. dollars?
You work for a firm whose home currency is the British Pound (GBP) and that is considering a foreign investment. The investment yields expected after-tax Russian Ruble (RUB) cash flows (in millions) as follows: -RUB1170 in Year 0, and RUB521 in each of the 3 years of the life of the project. The expected rates of inflation in each country are constant per year: 4.30% in Russia, and 9.10% in the UK. From the project's perspective the required return is 6.63%, while from the parent's perspective, the required rate of return is 11.56%. The spot exchange rate is GBP0.008314/RUB. What is the NPV of the project from the parent company's perspective? O a. GBP1.713 million O b. GBP2.779 million O c. GBP24,779.23 million O d. GBP40,209.27 million O e. None of the options in this question are correct.
Required: Calculate the contribution to total performance from currency, country, and stock selection for the manager in the example below. All exchange rates are expressed as units of foreign currency that can be purchased with 1 U.S. dollar. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places. Input all amounts as positive values.) Europe Australasia Far East Currency Selection Country Selection Stock Selection EAFE Weight 0.10 0.20 0.70 % % % Return on Equity Index 18% 14 23 Profit/Loss relative to EAFE relative to EAFE relative to EAFE E1/E0 0.70 1.05 1.30 Manager's Weight 0.20 0.40 0.40 Manager's Return 20% 15 15
Required: Calculate the contribution to total performance from currency, country, and stock selection for the manager in the example below. All exchange rates are expressed as units of foreign currency that can be purchased with 1 U.S. dollar. (Do not round intermediate calculations. Round your percentage answers to 2 decimal places. Input all amounts as positive values.) Europe Australasia Far East EAFE Weight 0.60 0.10 0.30 Return on Equity Index 20% 18 25 Profit/Loss Currency Selection % relative to EAFE Country Selection % relative to EAFE Stock Selection % relative to EAFE E1/EØ 1.10 0.50 1.30 Manager's Weight Manager's Return 0.48 18% 0.20 16 0.32 16

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