International financial management: MCQ An UK- based MNC expect to receive £20,000 from domestic operations and 20,000 Euro (€) from a business in Belgium. If the pound’s value is €1.05, the expected total cash flows in pound are: (a) £41,000 (b) £39,470 (c) £45,000 (d) none of the above
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International
- An UK- based MNC expect to receive £20,000 from domestic operations and 20,000 Euro (€) from a business in Belgium. If the pound’s value is €1.05, the expected total cash flows in pound are:
(a) £41,000
(b) £39,470
(c) £45,000
(d) none of the above
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- MCQ & True/false : International Financial Management: 1. A US-based MNC expects to receive $20,000 from domestic operations and 20,000 British pound (£) from a business in England. If the pound’s value is $1.25, the expected total dollar cash flow are: (a) $41,000 (b) $36,000 (c) £46,000 (d) £45,000 2. Relatively high Lebanese inflation may result in an increase in the supply of Lebanese pound for sale and a reduction in the demand for Lebanese pound. (a) True (b) False 3. The premium of a currency call option will increase if: (a) The volatility of the underlying asset foes up. (b) The spot rate goes down. (c) The time to maturity goes down.Assessing Transaction Exposure Your employer, a large MNC, has asked you to assess its transaction exposure. Its projected cash flows are as follows for the next year. Danish krone inflows equal DK50,000,000 while outflows equal DK40,000,000. British pound inflows equal £2,000,000 while outflows equal £1,000,000. The spot rate of the krone is $.15, while the spot rate of the pound is $1.50. Assume that the movements in the Danish krone and the British pound are highly correlated. Provide your assessment as to your firm’s degree of transaction exposure (as to whether the exposure is high or low).Suppose you work at the FOREX desk of a multinational bank. No particular country is the home country for you as your responsibility is to conduct foreign exchange trade in whichever way is profitable for the bank. Using this as your guideline, consider the following data: S0 = ¥92/US$ S180 = ¥92/US$ IUS = 2% per annum IJapan = 0.09% per annum With a starting amount of US$10 million or its Yen equivalent, can you make a UIA profit? What if a CIA was conducted at F180 of ¥90/US$? What are your observations?
- Assume that Blue Bell has expected cash flows of $325,000 from domestic operations, SF250,000 from Swiss operations, and 200,000 euros from Italian operations at the end of the year. The Swiss franc's value and euro's value are expected to be $.93 and $1.37 respectively, at the end this year. What are the expected dollar cash flows of Blue Bell?Uncertainty Surrounding an MNC’s Cash Flows Assume that Bangor Co. (a U.S. firm) knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 200,000 Swiss francs due to exports to Swiss operations, and cash outflows of 500,000 Swiss francs at the end of the year. While the future value of the Swiss franc is uncertain because it fluctuates, your best guess is that the Swiss franc’s value will be $1.10 at the end this year. What are the expected dollar cash flows of Bangor Co? Assume that Concord Co. (a U.S. firm) is in the same industry as Bangor Co. There is no political risk that could have any impact on the cash flows of either firm. Concord Co. knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 700,000 Swiss francs due to exports to Swiss operations, and cash outflows of 800,000 Swiss francs at the end of the year. Is the valuation of the total cash flows of Concord Co. more uncertain or less uncertain than the…International financial management : MCQ Assume the Canadian dollar is equal to £0.51 and the Peruvian Sol is equal to £0.16. The value of the Peruvian Sol in Canadian dollar is: (a) about 3.1875 Canadian dollars. (b) about .3137 Canadian dollars. (c) about 2.36 Canadian dollars. (d) about .3137 British pound (e) about .3137 Peruvian Sol. 2. Assume that a bank’s bid rate on Swiss francs is £0.25 and its ask rate is £0.26. Its bid-ask percentage spread is: (a) about 3.85 (b) about 4.00% (c) about 3.55% (d) about 4.15%
- Vogl Co. is a U.S. firm conducting a financial plan for the next year. It has no foreign, subsidiaries, but more than half of it sale are form exports. Its foreign cash inflows to be received from exporting and cash outflow to be paid for imported supplies over the next year are shown n the following table: Currency total inflow total outflow Canadian dollar (C$) C $32,000,000 C $ 2,000,000 New Zealand dollar (NZ$) NZ $ 5,000,000 NZ $1,000,000 Mexican peso (MXP) MXP 11,000,000 MXP 10,000,000 Singapore dollar (s$) S$ 4, 000,000 8000,000 The spot rate and one-year forward rates as of today are shown below: Currency spot rate one-year forward rate C$ $.90 .93 NZ$ .60 .59 MXP .18 .15 S$ .65 .64 Questions 1. Based on the information provided, determine Vogl’s net exposure to each foreign currency in dollars. 2. Assume that today’s spot rate is used as a forecast of the future spot rate one year from now. The New Zealand dollar, Mexican peso, and Singapore dollars are expected to move in…Assume the following to be a portion of the simplified balance of payments statement for a hypothetical country. The values are given in billions of dollars. Exports Imports Capital Outflows Capital Inflows $900 - $675 - $225 $135 If the central bank has not changed its holding of foreign-currency reserves during this period, then the capital-service account for this country should be equal to billion.Assume the euro’s spot rate is presently equal to $1.00. All of the following firms are based in New York and are the same size. While these firms concentrate on business in the U.S., their entire foreign operations for this quarter are provided here. Company A expects its exports to cause cash inflows of 9 million euros and imports to cause cash outflows equal to 3 million euros. Company B has a subsidiary in Portugal that expects revenue of 5 million euros and has expenses of 1 million euros. Company C expects exports to cause cash inflows of 9 million euros and imports to cause cash outflows of 3 million euros, and will repay the balance of an existing loan equal to 2 million euros. Company D expects zero exports and imports to cause cash outflows of 11 million euros. Company E will repay the balance of an existing loan equal to 9 million euros. Which of the five companies described here has the highest degree of translation exposure?
- 4. P Company is a U.S. firm conducting a financial plan for the next year. It has no foreign subsidiaries, but more than half of its sales are from exports. Its foreign cash inflows to be received from exporting and cash outflows to be paid for imported supplies over the next year are disclosed below: Currency Total Inflow Canadian dollars (C$) C$ 35,000,000 German mark (DM) DM 5,500,000 French franc (FF) FF 15,000,000 Swiss franc (SF) SF 6,000,000 The spot rates and one-year forward rates as of today are: Currency Spot Rate $0.90 $0.62 $0.16 $0.65 Total Outflow C$ 2,500,000 DM 1,600,000 FF 12,000,000 SF 8,000,000 One Year Forward Rate C$ $0.95 DM $0.59 FF $0.14 SF $0.69 Based on the information provided, determine the net exposure of each foreign currency in dollar. [P.T.O.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?Suppose that Cleveland Co. engages in international business, with transactions denominated in four different foreign currencies: the euro, the Canadian dollar, the Australian dollar, and the Mexican peso. The company wishes to measure its cash flows in a single currency, the dollar, over the next quarter. The following table shows the total cash inflows and outflows for each currency, along with the expected exchange rate for that currency. For each row in the table, enter the net inflow or outflow in that currency for the MNC. Then, enter the dollar value of that inflow or outflow in the last column of the table. Total Inflow (Millions) 30 euros Note: Remember to enter a negative sign if a value is negative. Currency Euro Net Inflow or Outflow (Millions) Total Outflow Expected Exchange (Millions) Rate Net Inflow or Outflow, In Dollars (Millions) 15 euros euros $1.20 Canadian Dollar $C30 $C20 C$ $0.90 +A Australian Dollar $A10 $A20 A$ $0.50 Mexican peso 20 pesos 30 pesos peso $0.10 +A…