Suppose that Retrojo Inc. is a U.S. based MNC that will need to purchase F$1.10 million (Fijian dollars, F$) worth of imports from Fiji in 90 days.Currently, the spot rate for the Fijian dollar is $0.53 per F$.If Retrojo were to exchange U.S. dollars for the required F$1,100,000.00 Fijian dollars, it would need $(U.S. dollars). IfRetrojo waits 90 days to make this exchange (perhaps due to insufficient funds on hand), and the Fijian dollar appreciates to $0.64 during those 90-days, then Retrojo would need $(U.S. dollars). Thus, if Retrojo believes that the Fijian dollar will appreciate, it canits exposure to such exchange rate risk by locking in the original exchange rate through the use of a forward contract.

1) $583,000.2)$704,000.3) Using Forward Contract: If Retrojo believes that the Fijian dollar will…

Answered: Suppose that Retrojo Inc. is a U.S.…

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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A U.S. firm, sells merchandise today to a British company for £100,000. The current exchange rate is $1.38/£, the account is payable in three months, and the firm chooses to hedge by borrowing £98,765.43 today and exchanging the proceeds today for dollars; the loan will be paid back with the £100,000 accounts receivable (money market hedge). If Husky converted the borrowed pounds into dollars today and invested that amount at its WACC of 6% (1.5% for 90 days), how much much money in U.S. dollars will Husky Sporting Goods Company have in 90 days?
Lakonishok equipment has an investment opportunity in Europe. The project cost 14,750,000 in europe currency and is expected to produce cash flows of euro 3,350,000 in year 1, euro 4,350,000 in year 2, and euro 4,750,000 in year 3. The current spot exchange rate is $ .83 in euros and the current risk free rate in the united states is 3 percent, compared to that in euroland of 2.2 percent. The appropriate discount rate for the project is estimated to be 10 percent, the U.S. cost of capital for the company. In addition, the subsidiary can be sold at the end of three years for an estimated 9,250,000 in euros. What is the NPV of the project in U.S dollars? Do not round intermediate calculations and enter your answers in dollars , not in million of dollars , rounded to 2 decimal places e.g. 1,234,567,.89.
Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed €19 million which is payable in one year. The current EUR/USD rate is 1.0651 and the one-year forward rate is 1.0898. The annual interest rate is 4.9% in the U.S. and 2.7% in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. It is considering to hedge borrowing euros from Credit Lyonnaise against the euro receivable. How much will they receive in one year? (USD, no cents) The answer is 20,670,407 I cannot figure out how. Thanks!
Victoria Exports (Canada). A Canadian exporter, Victoria Exports, will be receiving six payments of €13,400, ranging from now to 12 months in the future. Since the company keeps cash balances in both Canadian dollars and U.S. dollars, it can choose which currency to exchange the euros for at the end of the various periods. Which currency appears to offer the better rates in the forward market? (Click on the icon to import the table into a spreadsheet.) U Period spot 1 month 2 months 3 months 6 months 12 months Period Days Forward Spot 1 month 2 months Days Forward 30 60 90 180 360 0 30 60 Calculate the forward premium, the Canadian dollar proceeds, and the difference from the spot rate proceeds in the C$/Euro forward market below: (Round the forward premium to three decimal places and the Canadian dollar amounts to the nearest cent.) C$/euro C$/euro 1.3337 1.3364 1.3386 1.3412 1.3437 1.3461 1.3337 1.3364 1.3386 US$/euro 1.3217 1.3220 1.3222 1.3225 1.3230 1.3256 Forward Premium on the…
Suppose that you are a finance manager at a U.S. based MNC. On January 1st, you anticipate you will need to purchase C$170,000.00 (Canadian dollars) worth of supplies from a Canadian supplier in March using Canadian dollars (C$). The current spot rate for the Canadian dollar is $0.73. In order to lock in spot rate for this exchange, you purchase a futures contract specifying C$170,000.00 at $0.73 per Canadian dollar with a March 10th settlement date. On the settlement date, your MNC will need to pay (U.S. dollars) for the C$170,000.00.
2) Using the following cost and revenue information shown for Walmart, determine how the costs, revenue, and cash flow would be affected by three possible exchange rate scenarios for the New Zealand dollar (NZ$): (1) NZ$ = $.50, (2) NZ$ = $.55, and (3) NZ$ = $.60. (Assume U.S. sales will be unaffected by the exchange rate.) Assume that NZ$ earnings will be remitted to the U.S. parent at the end of the period. Ignore possible tax effects. Forecasted Net Cash Flows: Walmart. (in millions of U.S. dollars and New Zealand dollars) Sales Cost of Materials Operating Expenses Interest Expense Cash Flow U.S. Business $800 500 300 100 -$100 New Zealand Business NZ$800 100 0 0 NZ$700
Consider this case: Sebrele Enterprises Inc. is a U.S. firm evaluating a project in Australia. You have the following information about the project: The project requires an investment of AU$915,000 today and is expected to generate cash flows of AU$900,000 at the end of each of the next two years. The current exchange rate of the U.S. dollar against the Australian dollar is $0.7823 per Australian dollar (AUS). The one-year forward exchange rate is $0.8102 / AU$, and the two-year forward exchange rate is $0.8412 / AU$. The firm's weighted average cost of capital (WACC) is 9.5%, and the project is of average risk. What is the dollar-denominated net present value (NPV) of this project? $610,602 $726,908 $581,526 $639,679
Suppose that the U.S. firm Halliburton buys construction equipment from the Japanese firm Komatsu at a price of ¥250 million The equipment is to be delivered to the United States and paid for in one year. The current exchange rate is ¥96 = $1. The current interest rate on one-year U.S. Treasury bills is 6%, and on one-year Japanese government bonds the interest rate is 4%. a. If Halliburton exchanges dollars for yen today and invests the yen in Japan for one year, it will need to exchange today in order to have ¥250 million in one year. (Round your response to the nearest dollar)
suppose you purchased a 10 million one-year Australian dollar loan that pays 7 percent interest annually. The spot rate of U.S. dollars for Australian dollars (AUD/USD) is $0.820/A$1. What is par value of the loan in U.S. dollars?
Suppose that Boeing Corporation exported a Boeing 747 to Lufthansa and billed €10 million payable in one year. The money market interest rates and foreign exchange rates are given as follows: The U.S. one-year interest rate: 6.10% per annum; The euro zone one-year interest rate: 9.00% per annum; The spot exchange rate: $1.50/€; and The one-year forward exchange rate: $1.46/€. Assume that Boeing sells a currency forward contract of €10 million for delivery in one year, in exchange for a predetermined amount of U.S.dollars. Which of the following is/are true? On the maturity date of the contract Boeing will (0) have to deliver €10 million to the bank (the counter party of the forward contract). (ii) take delivery of $14.6 million (iii) have a zero net euro exposure (iv) have a profit, or a loss, depending on the future changes in the exchange rate, from this sale. Oi) and (iv) O (0) and (iv) O (i), (ii), and (iv) (0.0) and (iii)
Suppose the spot exchange rate for the U.S. dollar is CAD$1.01 and the six-month forward rate is CAD$1.03. a. Which is worth more, a U.S. dollar or a Canadian dollar? multiple choice 1 U.S. dollar Canadian dollar b. Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is CAD$3.10? (Round the answer to 2 decimal places. Omit $ sign in your response.) Cost in U.S dollar $ c. Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar? multiple choice 2 Discount Premium d. Which currency is expected to appreciate in value? multiple choice 3 Canada dollar U.S. dollar e. Which country do you think has higher interest rates—the United States or Canada? multiple choice 4 U.S. Canada please do all parts
OneUSF, a U.S. MNC based in Florida, is considering making a fixed direct investment in Italy. The Italian government has offered OneUSF a concessionary loan of €2,700,000 at a rate of 3 percent per annum. The current spot rate is $1.31/€1.00 and the expected inflation rate is 2.5% in the U.S. and 2% in Italy. The normal borrowing rate is 6 percent in dollars and 5.5 percent in euros. The loan schedule calls for the principal to be repaid in three equal annual installments. The marginal corporate tax rate in Italy and the U.S. is 35%. What is the present value of the benefit of the concessionary loan? W $143.174 $984,145 $111,756 None of the above with the $10,000 of the correct answer $1,131,289

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