Person GL has received his third memo on December 31 st 2016. Person JE the CEO of company D have stated in his memo that the purchase of the forward yen rate was an idea of person GL and the rate is higher and it tends to be a very affluent insurance. Peron GL also makes a recommendation that the yen could be purchased in the spot rate as they are lesser than the forward rate. Person JE is also worried about the cheap financing where the company is paying 6% to make the borrowings of dollars in a year. Person BH was stating that a year yen loan might be bought for 2% that was shocking To discuss: Whether the firm has to make the repayment of the dollar’s loans and instead of yen.

Question

Want to see the full answer?

Answer 1

Question

Chapter 22, Problem 3MC

Summary Introduction

Case summary:

Person GL has received his third memo on December 31^st 2016. Person JE the CEO of company D have stated in his memo that the purchase of the forward yen rate was an idea of person GL and the rate is higher and it tends to be a very affluent insurance. Peron GL also makes a recommendation that the yen could be purchased in the spot rate as they are lesser than the forward rate.

Person JE is also worried about the cheap financing where the company is paying 6% to make the borrowings of dollars in a year. Person BH was stating that a year yen loan might be bought for 2% that was shocking

To discuss: Whether the firm has to make the repayment of the dollar’s loans and instead of yen.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Considering the following quotes from three banks: London Bank: €1.0837/£ Hong Kong Bank: U$1.1944/£ Tokyo Bank: €0.9582/U$ Ignoring transaction costs, is there an arbitrage opportunity based on these quotes? Justify your answer through calculations. If yes, what steps would you take to make an arbitrage profit and how much profit in US dollars would you make if you are authorized to use 10 million US dollars for this purpose?

It is an ongoing issue in exchange rate manipulation. The United States has been protesting for many years that renminbi or yuan (CNY), the currency in China, is being undervalued. You would like to apply the concept of Purchasing Power Parity (PPP) to find out if such accusation is correct. Following are data you have collected from July 2016 Big Mac Index. Location United States China Hong Kong Big Mac prices in local currency July 2016 USD exchange rate USD4.5567 CNY 16.00 HKD17.00 6.1341 7.7567 (a) Analyse whether the accusation by the United States regarding undervaluation of the renminbi at that time was valid. Find out the percentage of undervalue/overvalue of the renminbi against the US dollar to support your view. (b) Some countries encourage manipulation in their exchange rate relative to those of some other countries as a means of relieving foreign trade imbalances. Evaluate each of the following scenarios regarding its impact that would have on the Hong Kong importers and…

Suppose that Nevada Co., a US-based MNC, makes regular, monthly purchases of materials from a German supplier named Spicurity. These regular payments are typically in the amount of 250,000 euros. Last month the exchange rate was $1.44 per euro. Nevada Co. only has cash reserves in dollars, while Spicurity only has cash reserves in euros. Suppose both companies use the same bank. In order to conduct this transaction last month, Nevada Co. required $ transaction reduced Nevada's account by this amount, denominated in dollars and credited it to Spicurity's account. 360,000.00 to pay for the materials. Thus, the bank handling the The bank then converted this amount to M