Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
4th Edition
ISBN: 9780134202648
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 3, Problem 2P
You are an international shrimp trader. A food producer in the Czech Republic offers to pay you 2 million Czech koruna today in exchange for a year’s supply of frozen shrimp. Your Thai supplier will provide you with the same supply for 3 million Thai baht today. If the current competitive market exchange rates are 25.50 koruna per dollar and 41.25 baht per dollar, what Is the value of this deal?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Suppose your company imports computer motherboards from Singapore. The exchange rate is $1.4353 per Singapore dollar. You have just placed an order for 38,260 motherboards at a cost to you of S148 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $118 each. What is the break-even exchange rate?
Suppose you want to buy a German car, which costs €55,000. What will be price of this car in the United States if the exchange rate is €0.90 per U.S. dollar? What will happen to the price if the exchange rate increases to €0.95 per U.S. dollar?
None
Chapter 3 Solutions
Corporate Finance: The Core (4th Edition) (Berk, DeMarzo & Harford, The Corporate Finance Series)
Ch. 3.1 - Prob. 1CCCh. 3.1 - If crude oil trades in a competitive market, would...Ch. 3.2 - How do you compare costs at different points in...Ch. 3.2 - Prob. 2CCCh. 3.3 - What is the NPV decision rule?Ch. 3.3 - Why doesnt the NPV decision rule depend on the...Ch. 3.4 - Prob. 1CCCh. 3.4 - Prob. 2CCCh. 3.5 - If a firm makes an investment that has a positive...Ch. 3.5 - Prob. 2CC
Ch. 3.5 - Prob. 3CCCh. 3.A - The table here shows the no-arbitrage prices of...Ch. 3.A - Suppose security Chas a payoff of 600 when the...Ch. 3.A - Prob. A.3PCh. 3.A - Prob. A.4PCh. 3.A - Prob. A.5PCh. 3.A - Consider a portfolio of two securities: one share...Ch. 3.A2 - Why does the expected return of a risky security...Ch. 3.A2 - Prob. 2CCCh. 3.A3 - Prob. 1CCCh. 3.A3 - Prob. 2CCCh. 3 - Honda Motor Company is considering offering a 2000...Ch. 3 - You are an international shrimp trader. A food...Ch. 3 - Prob. 3PCh. 3 - Prob. 4PCh. 3 - You have decided to take your daughter skiing in...Ch. 3 - Suppose the risk-free interest rate is 4%. a....Ch. 3 - You have an investment opportunity in Japan. It...Ch. 3 - Your firm has a risk-free investment opportunity...Ch. 3 - You run a construction firm. You have just won a...Ch. 3 - Your firm has identified three potential...Ch. 3 - Your computer manufacturing firm must purchase...Ch. 3 - Prob. 12PCh. 3 - Prob. 13PCh. 3 - An American Depositary Receipt (ADR) is security...Ch. 3 - Prob. 15PCh. 3 - An Exchange-Traded Fund (ETF) is a security that...Ch. 3 - Consider two securities that pay risk-free cash...Ch. 3 - Prob. 18P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- The current market exchange rate is 2.2 francs per pound. Suppose you need to buy 6 pounds using French francs. If you buy 6 pounds directly in the foreign exchange market, it will cost you 13.2 francs. Alternatively, given pound is overpricing (higher than shipping cost), you can _________for the benefit of the exchange. A. first buy an ounce of gold for 6 pounds in England and then ship it to France and sell it for 12 francs B. first buy an ounce of gold for 12 francs in England and then ship it to France and sell it for 6 pounds C. first buy an ounce of gold for 12 francs in France and then ship it to England and sell it for 6 pounds D. first buy an ounce of gold for 6 pounds in England and then ship it to France and sell it for 12 francsarrow_forwardLagoon (a U.S. firm) will be receiving 4 million British pounds in one year. It will need to make a payment of 3 million Polish zloty in one year. It has no other exchange rate risk at this time. However, it needs to buy supplies and can purchase them from Switzerland, Hong Kong, Canada, or Ecuador. Another alternative is that it could purchase one-fourth of the supplies from each of those 4 countries. The supplies will be invoiced in the currency of the country where they are imported from. Lagoon Co. believes that none of the sources of the imports would provide a clear cost advantage. As of today, the dollar cost of these supplies would be about $6 million regardless of the source that will provide the supplies. The spot rates today are as follows: British pound = $1.80 Swiss franc = $.60 Polish zloty = $.30 Hong Kong dollar = $.14 Canadian dollar = $.60 The movements of the pound and the Swiss franc and the Polish zloty against the dollar are highly correlated. The Hong Kong…arrow_forwardSuppose your company imports computer motherboards from Singapore. The exchange rate is currently 1.3356 S$/US$. You have just placed an order for 30,000 motherboards at a cost to you of 218.50 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $175 each. a. Calculate your profit if the exchange rate stays the same over the next 90 days. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. b. Calculate your profit if the exchange rate rises by 10 percent over the next 90 days. Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. c. Calculate your profit if the exchange rate falls by 10 percent over the next 90 days. Note: A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. d. What is the break-even exchange rate? Note: Do not round…arrow_forward
- You are the Financial Manager of Walmart in U.S. and Walmart has recently started exporting food products to an Australian company, Woolworths. The exports are currently invoiced in Australian dollars (AUD). Suppose further that Walmart shipped an order to Woolworths invoiced at AUD100 million at the end of 2018. Walmart expects payment in a year's time. Suppose that the spot exchange rate at the end of 2018 was AUD1.3036/USD and that the mean and standard deviation of the AUD/USD historical percentage changes are u=0.28% and o=9.95%, respectively. What are the conditional mean and conditional volatility of the future spot AUD/USD exchange rate in a year's time? OConditional mean AUDO.365/USD, and conditional volatility AUDO.14/USD O Conditional mean AUD1.3073/USD, and conditional volatility AUD13/USD Conditional mean AUD1.3073/USD, and conditional volatility AUDO.13/USD Conditional mean AUDO.004/USD, and conditional volatility AUDO.78/USDarrow_forwardSuppose that a chocolate bar costs 20 euros in France and 30 Singaporean dollars in Singapore. If the exchange rate is 1.20 euros per Singaporean dollars, what is the real exchange rate?arrow_forwardA US company has land in Sydney that will likely be sold in the next year. There are two possible states of the world. With a probablity BO% the exchange rate will be $1.4000 / AS. In this case the land will be worth A$4,000.000. With a probability 20% the exchange rate will be $1.5260 / AS and the land will be worth A$3.600,000. How would you use financial hedging to hedge this exposure Sell AS827.556 forward Buy AS844,444 forward Sell AS3.600.000 forward Buy AS4.000.000 forward None of the alternativesarrow_forward
- In Sweden, the exchange rate of the Norwegian krone is 0.95. The exchange rate of the Polish zloty is 2.6. In Norway, the exchange rate of the zloty is 2.9. If you start with 100 SEK, how many SEK can you earn by setting up an arbitrage scheme?arrow_forwardYou are a U.S. importer and just placed an order of antiques worth £100,000 from a U.K supplier. You owe £100,000 to the U.K seller in one year. You are concerned about the dollar cost of this purchase in one year and decide to hedge your exchange rate risk using options. The current spot exchange rate is $1.45/£, and the forward exchange rate is $1.40/£. The U.S. interest rate is 2.00%, and the U.K. interest rate is 4.00%. A call option with a strike price of $1.40/£ is available with a premium of $0.10/£. A put option with a strike price of $1.40/£ is available with a premium of $0.08/£. What will be your total dollar cost of this purchase in one year with options hedge if the spot rate in one year turns out to be $1.50/£? Consider whether you will exercise your options if the future spot rate turns out to be $1.50/£. Enter the numeric portion of your answer. Give typing answer with explanation and conclusionarrow_forwardSuppose your company imports computer motherboards from Singapore. The exchange rate is $1.4878 per Singapore dollar. You have just placed an order for 41107 motherboards at a cost to you of S147 Singapore dollars each. You will pay for the shipment when it arrives in 90 days. You can sell the motherboards for $118 each. What is the break-even exchange rate? NOTE: Enter the PERCENTAGE number rounding to two decimals.arrow_forward
- You are a U.S. importer and just placed an order of antiques worth £100,000 from a U.K supplier. You owe £100,000 to the U.K seller in one year. You are concerned about the dollar cost of this purchase in one year and decide to hedge your exchange rate risk using money market hedge. The current spot exchange rate is $1.40/£, and the forward exchange rate is $1.35/£. The U.S. interest rate is 2.00%, and the U.K. interest rate is 4.00%. What will be the total dollar cost of this purchase in one year with money market hedge? Enter only the numeric portion of your answer.arrow_forwardSuppose that the current spot exchange rate is €2.62/OMR and the one year forward exchange rate is €2.65/OMR. The one year interest rate is 6 in Euros and 5 in Oman. You can borrow OMR 1,000,000 or the equivalent in euro at the current spot exchange rate? Assume you are Omani based investor? Find Interest rate parity of €/OMR Show how you can realize guaranteed profit from covered interest? How much the size of arbitrage profit in OMR?arrow_forwardThe current spot exchange rate is USD 1.55 / EUR, and the 3-month forward rate is USD 1.50 / EUR. Based on your analysis of the exchange rate, you are confident that the spot exchange rate will be USD 1.62 / EUR in 3 months. You would like to buy or sell EUR 1 million. What should you do in order to speculate in the forward market?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Foreign Exchange Risks; Author: Kaplan UK;https://www.youtube.com/watch?v=ne1dYl3WifM;License: Standard Youtube License