Transaction exposure. International Products has contracted for 6,000 winter hats from Russia. The contract price is 1,250 rubles per hat. The current direct exchange rate is 0.03994. The expected inflation rate for the next 3 months is 5.1% in the United States and 2.2% in Russia. If International Products will pay for the hats at delivery and scheduled delivery is 3 months away, what is the cost of the hats in U.S dollars? Did waiting the 3 months to pay increase or decrease the payment (in U.S. dollars)? If so, by how much? If International Products will pay for the hats at delivery and scheduled delivery is 3 months away, what is the cost of the hats in U.S. dollars? (Round to the nearest cent.) Did waiting the 3 months to pay increase or decrease the payment (in U.S. dollars)? If so, by how much? (Select the best response.) O A. Waiting the 3 months to pay increases the payment by $2,102.21. O B. Waiting the 3 months to pay decreases the payment by $2,102.21. OC. Waiting the 3 months to pay does not change the amount of payment. O D. Waiting the 3 months to pay decreases the payment by $2,228.34. O E. Waiting the 3 months to pay increases the payment by $2,228.34.

Transaction exposure. International Products has contracted for 6,000 winter hats from Russia. The contract price is 1,250 rubles per hat. The current direct exchange rate is 0.03994. The expected inflation rate for the next 3 months is 5.1% in the United States and 2.2% in Russia. If International Products will pay for the hats at delivery and scheduled delivery is 3 months away, what is the cost of the hats in U.S dollars? Did waiting the 3 months to pay increase or decrease the payment (in U.S. dollars)? If so, by how much? If International Products will pay for the hats at delivery and scheduled delivery is 3 months away, what is the cost of the hats in U.S. dollars? (Round to the nearest cent.) Did waiting the 3 months to pay increase or decrease the payment (in U.S. dollars)? If so, by how much? (Select the best response.) O A. Waiting the 3 months to pay increases the payment by $2,102.21. O B. Waiting the 3 months to pay decreases the payment by $2,102.21. OC. Waiting the 3 months to pay does not change the amount of payment. O D. Waiting the 3 months to pay decreases the payment by $2,228.34. O E. Waiting the 3 months to pay increases the payment by $2,228.34.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 8P

See similar textbooks

Similar questions

please show all working steps with formulas or excel
Global Distributors Inc. plans to make a payment of €1,500,000 to a supplier in Europe in 3 months. To protect against currency fluctuation, the company is considering entering into a forward rate agreement. The current EUR/USD spot exchange rate is 1.15, and the three-month forward rate offered by the bank is 1.17. If the spot rate at the time of transaction becomes 1.20, how much USD will Global Distributors save by entering into the forward rate agreement? *A)* $37,500 *B)* $45,000 *C)* $75,000 *D)* None, it incurs a loss
Consider a U.S.-based company that exports goods to Switzerland. The U.S. company expects to receive a payment of 50,000 Swiss Francs (CHF) on a shipment of goods in 6 months' time. The U.S. interest rate is 2% p.a., and the Swiss interest rate is 4% p.a. Assume that the current spot rate is CHF0.96/USD. Which of the following statements is correct: The risk to the U.S. company is that the value of the Swiss franc will rise and therefore it should enter into a contract to buy Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will decline and therefore it should enter into a contract to buy Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will decline and therefore it should enter into a contract to sell Swiss francs forward The risk to the U.S. company is that the value of the Swiss franc will rise and therefore it should enter into a contract to sell Swiss francs forward
Blur Ltd, a UK importer, expects to make a payment of 1.8m Australian dollars (A$) for sure in one year from now. Blur will need to pay for the A$ currency in sterling (£). Assume that the Australian dollar’s spot exchange rate now is A$=£0.56, the one-year forward rate is A$=£0.59, and the discount rate is zero. Blur may need to pay an additional A$3.1m one year from now if it agrees a deal with a new Australian supplier, also payable in one year from now. The probability of this deal being agreed is 0.5. If the deal is not agreed (probability 0.5), Blur makes no payment to the new supplier. Suppose for parts (a) and (b) that the spot rate in one year is A$=£0.58. Assume Blur chooses to enter into a forward exchange contract for the maximum possible payment of A$4.9m. What actions will the firm take and what will be the value of its net payments in £, if in one year: the new deal is agreed? the new deal is not agreed? What will be the expected value of Blur’s net payment in…
21. On April 1, Quality Corporation, a U.S. company, expects to sell merchandise to a French customer in three months, denominating the transaction in euros. On April 1, the spot rate is $1.41 per euro, and Quality enters into a three-month forward contract cash flow hedge to sell 400,000 euros at a rate of $1.36. At the end of three months, the spot rate is $1.37 per euro, and Quality delivers the merchandise, collecting 400,000 euros. What amount will Quality recognize in Sales from these transactions? a.0 b.400,000 c.544000 d.548000 e.564000
Suppose that a US-based company is buying Chinese goods. Current exchange rate for Chinese Yuan is 0.15 USD. The price of goods is ¥13,000 per unit. The company is buying 800 units per year with a fixed contract for the next two years. Suppose that Chinese Yuan appreciate to 0.2 USD in the next year. The US importer will respond to this by lowering the demand to 600 units in the third year. What cash flow will be reflected on the balance of payments at the end of the third year? Your Answer:
Credible Research sold a microchip to the Vausten Institute in Germany on credit and invoiced €10 million payable within half a year. Currently, the 6-month forward exchange rate is $1.10/€ and the foreign exchange advisor for Credible Research predicts that the spot rate is likely to be $1.05/€ in 6 months. (i) What would be the expected gain or loss from the forward hedging? (ii) As a decision-maker for Credible Research, would you suggest hedging this euro receivable? Please explain why or why not? (iii) what if the foreign exchange advisor anticipates that the future spot rate will be similar to the forward exchange rate quoted today. As the decision-maker would you propose hedging in this case? If yes or no why?
Pfizer, an American corporation, just signed a contract to sell laboratory equipment for COVID -19 research to Bayer AG- a German corporation. Bayer AG will be billed €10 million, which is receivable in 3 months. The current spot exchange rate is $1.1290/€ and the 3-month forward rate is $1.1945/€. The U.S. annual deposit rate is 4.0% and annual U.S. borrowing rate is 8%. The annual borrowing rate at the Dresden Bank (Germany) is 8.0%. Pfizer’s cost of capital is 10% per annum. Put options on Euro are available at strike rate of $1.1960/€ and premium of 1.0%. Call options on Euro are available at strike rate of $1.1970/€ and premium of 1.5%. Pfizer is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. Outline how you would deal with transaction exposure. Calculate and discuss different hedging alternatives. Which alternative would you recommend? Why?
Currently, the USD/MXN rate is 19.5300 and the three-month forward exchange rate is 20.8400. The three-month interest rate is 3.3% per annum in the U.S. and 6.3% per annum in Mexico. Assume that you can borrow MXP10,000,000 or its equivalent in USD. How much do you make/lose if you borrow locally and invest abroad? (USD, no cents)
Currently, the USD/MXN rate is 19.7800 and the six-month forward exchange rate is 20.1700. The six-month interest rate is 4.9% per annum in the U.S. and 6.2% per annum in Mexico. Assume that you can borrow MXP10,000,000 or its equivalent in USD. How much do you make/lose if you borrow the foreign currency and invest locally? (USD, no cents)
Suppose a German importer owes an Australian exporting company 150,000 AUD, due in three months. What is the expected spot rate?
A selected bundle of goods costs £100 in the UK, and a similar bundle costs 1,200 krona (DKR) in Denmark. People generally expect the rate of inflation to be 5 per cent in the UK and 3 per cent in Denmark. (a) Assuming that PPP applies, what is the current exchange between GBP and DKR? (b) Assuming that PPP will continue to hold, what spot exchange rate would you predict for 12 months hence? (c) Again assuming PPP, what exchange rate should be quoted for three-month forward transactions?