Foundations Of Multinational Financial Management 6th Edition Alan C Shapiro, Atulya Sarin - Solutions

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Comment on the following statement: "On October 19, 1987, the U.S. stock market crashed. As the globe turned the following day, the devastation spread from New York to Tokyo, Hong Kong, Sydney, and Singapore, and on to Frankfurt, Paris, and London, then back to New York. The domino style spread of
OPEC nations have obviously preferred portfolio investments abroad to direct foreign investment. How does the theory of market imperfections explain this preference?
More and more Japanese companies are moving in on what once was an exclusive U.S. preserve: making and selling the complex equipment that makes semiconductors. World sales are between $$3$ billion and $$5$ billion annually. The U.S. equipment makers already have seen their share of the Japanese
Nordson Co. of Amherst, Ohio, a maker of painting and glue equipment, exports nearly half its output. Customers value its reliability as a supplier. Because of an especially sharp run up in the value of the dollar against the French franc, Nordson is reconsidering its decision to continue supplying
A company gives its traders bonuses if their selective hedging strategies are less expensive than the cost of hedging all their transaction exposure on a continuous basis. What problems can you foresee from this bonus plan?
In February 2022, as a response to its invasion of Ukraine, Russia faced unprecedented sanctions from Western countries representing more than half the world’s economic output. What is the expected market reaction for the Russian Ruble (RUB)?
In March 2020, the COVID-19 pandemic causes almost all transportation to cease in major industrialized countries. What would be the likely market reaction for the Norwegian krone (NOK) and the Saudi Arabian riyal (SAR) given that these two countries are large petroleum exporters?
How is the surprise announcement by Jerome Powell to reduce benchmark interest rates in the United States by one full percentage point to mitigate the economic impact of the COVID-19 pandemic expected to impact the U.S. dollar relative to the euro?
Comment on the following headline from the New York Times: “European Central Bank Signals End of Cheap Money Era Is Coming” (September 7, 2017) implying that the ECB may raise interest rates sooner than anticipated.
Given the resources available to them, countries A and B can produce the following combinations of steel and corn:a. Do you expect trade to take place between countries A and B? Why?b. Which country will export steel? Which will export corn? Country A Country B Steel (tons) Corn (bushels) Steel
In response to a falling Turkish lira the President of Turkey Recep Tayyip Erdoğan on May 11, 2018 called for lower interest rates and described interest rates as the “mother and father of all evil.”a. Discuss the likely reaction by the foreign exchange markets of this announcement.b. What
On July 19, 2018, the president of the United States Donald Trump commented that a strong dollar “puts us at a disadvantage,” which marked another example of the U.S. president commenting directly—and sometimes contradictorily—on the country’s currency.a. What was the likely reaction of
Between January 1, 2018 and August 14, 2018, the Turkish lira tumbled dramatically from TL3.786/USD to TL6.955/USD.a. What was the original U.S. dollar value of the Turkish lira? What is the new U.S. dollar value of the Turkish lira?b. By what percentage has the Turkish lira devalued (revalued)
On February 2, 2018, one U.S. dollar bought €0.799. A few months later on August 16, 2018, the same U.S. dollar bought €0.882.a. What was the dollar value of the euro in February 2018? What was the euro’s dollar value in August 2018?b. By what percentage has the euro fallen (risen) in value
On June 22, 2016, the day before the brexit vote, the British pound was worth $1.467. Two weeks later, on the July 7, the British pound was worth $1.292.a. By what percentage has the pound appreciated or depreciated against the dollar during this two-week period?b. By what percentage has the
Argentina, once the world’s seventh-largest economy, has long been considered one of Latin America’s worst basket cases. Starting with Juan Peron, who was first elected president in 1946, and for decades after, profligate government spending financed by a compliant central bank that printed
From base price levels of 100 in January 2000, Japanese and U.S. price levels in December 2017 stood at 123 and 191, respectively.a. If the January 2000 $:¥ exchange rate was $0.007692, what should the exchange rate be in December 2017?b. In fact, the exchange rate in December 2017 was ¥1 =
In early 2018, the short-term interest rate in the Japan was −0.1%, and forecast Japanese inflation was 1.2%. At the same time, the short-term South Korean interest rate was 1.68% and forecast South Korean inflation was 2%.a. Based on these figures, what were the real interest rates in Japan and
Suppose Lufthansa buys $400 million worth of Boeing jets in 2018 and is financed by the U.S. Eximbank with a five-year loan that has no principal or interest payments due until 2019. What is the net impact of this sale on the U.S. current account, financial account, and overall balance of payments
Current-account balance in China.a. In 2010, China’s overall saving rate was nearly 51.5% of GDP, the highest in the world. China’s domestic investment rate, at 43%, was also high, but not as high as its saving rate. What do these facts imply about China’s current-account balance in
The $/€ exchange rate is €1 = $1.45, and the €/CHF exchange rate is CHF 1 = €0.71. What is the CHF/$ exchange rate?
According to the Wall Street Journal, on May 8, 2009, a BNY Mellon foreign exchange desk bought €4 million on behalf of an L.A. pension fund at a rate of $1.3625, just below the high for the day of $1.3653. The low for the day was $1.3339. Suppose that the pension fund had been charged at the
Using the data in Table 6.1, calculate the 30-day, 90-day, and 180-day forward premiums for the British pound.Table 6.1 Foreign Exchange Rates, Friday, November 30, 2018 Source: Bloomberg. Currency 1 USD buys 37.7281 Argentine Peso Australian 1.3686 Dollar 1-month forward 3-month forward 6-month
Suppose that the forward ask price for March 20 on euros is $0.9127 at the same time that the price of CME euro futures for delivery on March 20 is $0.9145. How could an arbitrageur profit from this situation? What will be the arbitrageur’s profit per futures contract (contract size is
A trader executes a “bear spread” on the Japanese yen consisting of a long PHLX 103 March put and a short PHLX 101 March put. If the price of the 103 put is
What is a currency swap?
In “The Big Short: Inside the Doomsday Machine” Michael Lewis writes “a credit default swap was confusing mainly because it wasn’t really a swap at all. It was an insurance policy, typically on a corporate bond, with semiannual premium payments and a fixed term.” In what way is a CDS a
AQR Capital Management an investment management firm recently bought $100,000,000 worth of A-rated GE bonds but following a downgrade of the bonds to BBB the portfolio manager is increasingly worried about the increasing default risk. The portfolio manager is considering buying a 5-year CDS on GE
Ford exports SUV’s from the United States to Europe in competition with the Japanese. Similarly, Apple exports computers to Europe. However, all of Apple’s biggest competitors are American companies—Dell, Hewlett Packard, etc. Assuming all else is equal, which of these companies—Ford or
On August 1, 2012, France implemented a “Tobin tax” or Financial Transaction Tax (FTT), which consists in a 0.2% tax on stock purchases of French publicly traded companies with a market value over €1 billion. A similar tax was subsequently adopted in Italy; whereas in Germany the government
A Novo Nordisk A/S ADR is trading on the New York Stock Exchange for $49.78. The ADR ratio is 1:1 and the current exchange rate is $1=DKK 6.57. What ought to be the Danish kroner price of Novo Nordisk on the Copenhagen stock exchange if we assume no arbitrage?
Sweden’s Oasmia Pharmaceutical AB is trading on the Nadaq in New York for $2.90 and on the Nasdaq OMX in Stockholm for SEK 9. If the exchange rate is currently $1=SEK 9.30 then what is the ADR ratio?
Suppose that Argentina bonds are yielding more than 13% annually. Does this high yield make them suitable for American investors looking to raise the return on their portfolios? Explain.
Investors should avoid investing in the United Kingdom, given its problematic outlook now that Britain is exiting the European Union. Comment.
During the year, the price of British gilts (government bonds) went from £102 to £106, while paying a coupon of £9. At the same time, the exchange rate went from £1:$1.40 to £1:$1.25. What was the total dollar return, in percent, on gilts for the year?
During 2018, Toyota Motor Company shares went from ¥7,500 to ¥6,500, while paying a dividend of ¥220. At the same time, the exchange rate went from $1 = ¥113 to $1 = ¥109.a. What was the total dollar return, in percent, on Toyota stock for the year?b. What was the yen return, in percent, for
On January 1st, 2019, the dollar was worth €1.147. If one-year German bunds are yielding −0.55% and one-year U.S. Treasury bonds are yielding 2.55%, at what end-ofyear exchange rate will the dollar returns on the two bonds be equal? What amount of euro appreciation or depreciation does this
In 1998, Daimler-Benz bought 100% of Chrysler Corp. for $36 billion. In 2007, DaimlerChrysler announced it was selling 80.1% percent of Chrysler to the private-equity firm Cerberus Capital Management for $7.4 billion. In 1998, one Deutsche mark was worth $0.56. The Deutsche mark was later replaced
The CFO of Amazon.com Inc. is thinking of borrowing Japanese yen because of its low interest rate, currently at 1%. The current interest rate on U.S. dollars is 3%. What is your advice to the CFO?
FMC Corporation, a Philadelphia-based specialty chemicals company, traditionally finances its Brazilian operations from outside that country because it is “too expensive” to borrow local currency in Brazil. Brazilian interest rates vary from 12% to more than 30%. FMC Corporation is now thinking
Switzerland-based Glencore is the world’s largest producer of cobalt, which is mined alongside copper at its Katanga and Mutanda mines in the Democratic Republic of Congo. It is currently considering an expansion of its Tenke Fungurume. The cost of the expansion of this property is estimated to
Suppose that a foreign project has a beta of 0.95, the risk-free return is 3%, and the required return on the market is estimated at 12%. What is the cost of capital for the project?
On March 28, 2019, Netflix had an equity beta of 1.56 calculated over the last three years using monthly returns on Netflix and the S&P 500 as the market proxy. The S&P 500 and Netflix had a standard deviation of returns of 10.74% and 40.72% over the same time horizon. What was the correlation in
Suppose that one of the inducements provided by Thailand to woo Scandisk into setting up a local production facility is a 10-year, $10 million loan at 3% interest. The principal is to be repaid at the end of the tenth year. The market interest rate on such a loan is about 6%. With a marginal tax
Group PSA, headquartered in the outskirts of Paris, France is the second largest European-based auto-manufacturer in the world. Its brands include Peugeot, Citroën, DS, Opel, and Vauxhall (the last two brands it acquired from GM in 2017). Despite having a large international presence, PSA is
In 2017, the Japanese company Takeda Pharmaceutical Company acquired the U.S. company ARIAD Pharmaceuticals at leader in oncology therapies for $5.2 billion. What economic advantages might the two drug companies be expecting from their marriage? More generally, what economic forces underlie the
Carrier Air Conditioner, a division of United Technologies, is thinking of shifting virtually all the labor-intensive portion of its production from Indiana to Mexico. What risks is Carrier likely to face if it goes ahead with this move?
Germany’s $95 billion in revenue electronics giant, Siemens AG, sells medical and telecommunications equipment, power plants, automotive products, and computers. Siemens has been operating in the United States since 1952, but its U.S. revenues account for only about 25% of worldwide revenues. It
Comment on the following statement: “Middle East airlines have not been popular with the U.S. legacy carriers. This is because the Gulf airlines in the past have been heavily subsidized, with the oil-producing nations giving ‘free’ fuel to their national carriers while at the same time
Suppose England raised its corporate tax rate by one percentage point. How would this increase affect the economics of the IDC-U.K. project?
Suppose a firm earns $1 million before tax in Spain. It pays Spanish tax of $0.25 million and remits the remaining $0.75 million as a dividend to its U.S. parent.a. Under U.S. tax law prior to the Tax Cuts and Jobs Act, how much U.S. tax will the parent owe on this dividend?b. How will the Tax
Bornholms Kildevand produces natural spring water on the small island of Bornholm, Denmark in the Baltic sea. A 1 liter bottle retails for about 30 Danish kroner or roughly $4.50. On its bottles it claims: “At Bornholms Kildevand it is not merely a matter of quality. It is also about us wanting
Problems 1 and 2 are based on the Spectrum Manufacturing AB case (scenarios 1, 2, and 3) presented in the chapter. Calculate Spectrum’s economic exposure under the following new scenarios:Scenario 5:Volume and import prices rise; other variables remain the same.The krona sales price remains at
Problems 1 and 2 are based on the Spectrum Manufacturing AB case (scenarios 1, 2, and 3) presented in the chapter. Calculate Spectrum’s economic exposure under the following new scenarios:Scenario 4:Sales and import prices rise; domestic materials substituted for imported materials; other
The value of the call option is shown as approaching its intrinsic value as the option goes deeper and deeper in the money or further and further out of the money. Explain why this is so.
A well-known U.S. firm has a reinvoicing center (RC) located in Geneva. The reinvoicing center handles an annual sales volume of $1.2 billion – $700 million in interaffiliate sales and the rest in third-party sales. The RC buys goods manufactured by the parent company or other subsidiaries and
Jim Toreson, CEO of Xebec Corp., a California, manufacturer of disk drive controllers, must decide whether to switch to offshore production. Given Xebec’s well developed engineering and marketing capabilities, Toreson could use offshore manufacturing to ramp up production, taking advantage of low
Refer to the example of Exxon’s zero coupon Eurobond issue in the section titled The Euromarkets.a. How much would Exxon have earned if the yield on the stripped Treasurys had been 12.10%? 12.25%?b. Suppose the Japanese government taxed the accretion in the value of zero coupon bonds at a rate of
For the country selected in additional problem 4, analyze the exchange rate against the dollar during the same period.a. Is there any observable relationship between the BOP accounts and the exchange rate?b. Provide a possible explanation for your observations in (a) above.Data from in problem
Suppose that three-month interest rates (annualized) in Japan and the U.S. are 7% and 9%, respectively. If the spot rate is ¥142:$1 and the 90-day forward rate is ¥139:$1:a. Where would you invest?b. Where would you borrow?c. What arbitrage opportunity do these figures present?d. Assuming no
On February 15, 1993, President Clinton previewed his State of the Union message to Congress in a toughly worded speech about how the growing federal budget deficit made tax increases necessary. Financial markets reacted by pushing bond prices up and pummeling stock prices. President Clinton said
Comment on the following statement: “A system of floating exchange rate fails when governments ignore the verdict of the exchange markets on their policies and resort to direct controls over trade and capital flows.”
Describe the chief differences between a currency board and a central bank with a nominal exchange rate target.
On May 11, 1995, the House Budget Committee approved a plan to slash federal spending through 2002 and thereby end the persistent U.S. budget deficits. How do you think the dollar responded to this news?
Currently the yuan is not a convertible currency, meaning Chinese individuals cannot exchange their yuan for dollars to invest abroad. Moreover, companies operating in China must convert all their foreign exchange earnings into yuan. What would happen to the pressure on the yuan to revalue if China
On February 1, the euro is worth $1.2966. By May 1, it has moved to $1.3634.a. By how much has the euro appreciated or depreciated against the dollar over this 3-month period?b. By how much has the dollar appreciated or depreciated against the euro over this period?
Between 1988 and 1991, the price of a room at the Milan Hilton rose from Lit 346,400 to Lit 475,000. Concurrently, the exchange rate went from Lit 1,302 = $1 in 1988 to Lit 1,075 = $1 in 1991.a. By how much has the dollar cost of a room at the Milan Hilton changed over this three year period?b.
On January 1, 1975, the Mexican peso/U.S.$ exchange rate was Ps 12.5 = $1. By 1985, the exchange rate stood at Ps 208.9 = $1.a. By how much has the Mexican peso appreciated or depreciated against the dollar over this 10-year period?b. By how much has the dollar appreciated or depreciated against
How is the nature of IBM’s competitive advantages related to its becoming an MNC?
If capital markets were perfect, i.e., capital could move freely across national borders, would MNCs still exist? Why? Or, why not?
A memorandum by Labor Secretary Robert Reich to President Clinton suggests that the government penalize U.S. firms that invest overseas rather than at home. According to Reich, this kind of investment hurts exports and destroys well-paying jobs. Comment on this argument.
In a satirical petition on behalf of French candlemakers, French economist Frederic Bastiat called attention to cheap competition from afar: sunlight. A law requiring the shuttering of windows during the day, he suggested, would benefit not only candlemakers but “everything connected with
Explain how globalization may affect even a small business in your local area.
a. What are the various categories of MNCs?b. What is the motivation for international expansion of firms within each category?
Opponents of globalization and outsourcing argue that locating manufacturing activities abroad causes a loss of U.S. jobs. However, total employment figures reveal that rather than resulting in a net loss of jobs, employment has actually increased. Also, the average wages of workers have
a. How does foreign competition limit the prices domestic companies can charge and the wages and benefits workers can demand?b. What political solutions can help companies and unions avoid the limitations imposed by foreign competition?c. Who pays for these political solutions? Explain.
Elaborate on the benefits of a proactive approach to globalization and global competition.
What are the various reasons for the emergence of multinational firms?
Given the added political and economic risks that appear to exist overseas, are MNCs more or less risky than purely domestic firms in the same industry? Consider whether a firm that decides not to operate abroad is insulated from the effects of economic events that occur outside the home country.
a. What is the capital asset pricing model?b. What is the basic message of the CAPM?c. How might an MNC use the CAPM?
What are the various ways in which domestic firms enter international markets? What are the benefits and risks of each strategy of foreign market entry?
a. Are MNCs riskier than purely domestic firms?b. What data would you need to address this question?
In seeking to predict tomorrow’s exchange rate, are you better off knowing today’s exchange rate or the exchange rates for the past 100 days?
Why might setting up production facilities abroad lead to expanded sales in the local market?
a. How might total risk affect a firm’s production costs and its ability to sell? Give some examples of firms in financial distress that saw their sales drop.b. What is the relation between the effects of total risk on a firm's sales and costs and its desire to hedge foreign exchange risk?
Describe how these three typical transactions should affect present and future exchange rates.a. Seagram imports a year's supply of French champagne. Payment in euros is due immediately.b. MCI sells a new stock issue to Alcatel, the French telecommunications company. Payment in dollars is due
Why is China trying to hold down the value of the yuan? What evidence suggests that China is indeed pursing a weak currently policy?
On August 1, 2006, Zimbabwe changed the value of the Zim dollar from Z$101/U.S.$ to Z$250/U.S.$.a. What was the original U.S. dollar value of the Zim dollar? What is the new U.S. dollar value of the Zim dollar?b. By what percent has the Zim dollar devalued (revalued) relative to the U.S. dollar?c.
Suppose prices start rising in the U.S. relative to prices in Japan. What would we expect to see happen to the dollar: yen exchange rate? Explain.
If a foreigner purchases a U.S. government security, what happens to the supply of and demand for dollars?
The maintenance of money's value is said to depend on the monetary authorities. What might the monetary authorities do to a currency that would cause its value to drop?
In the second half of 1997, the Indonesian rupiah devalued by 84% against the U.S. dollar. By how much has the dollar appreciated against the rupiah?
In 2002, one dollar bought ¥125. In 2006, it bought about ¥115.a. What was the dollar value of the yen in 2005? What was the yen’s dollar value in 2006?b. By what percent has the yen risen in value between 2002 and 2006?c. By what percent has the dollar fallen in value between 2002 and 2006?
In 1987, the British government cut taxes significantly, raising the after tax return on investments in Great Britain. What would be the likely consequence of this tax cut on the equilibrium value of the British pound?
During 1997, the U.S. dollar appreciated by 104% against the South Korean won. By how much did the won depreciate against the U.S. dollar during the year?
Comment on the following headlines in The Wall Street Journal:a. “Sterling Drops Sharply Despite Good Health of British Economy: Oil Price Slump Is Blamed” (January 17, 1985)b. “Dollar Surges as Coup in Soviet Union Revives Unit’s Appeal as a Safe Haven” (August 20, 1991)c. “Dollar
Some economists have argued that a lower government deficit could cause the dollar to drop by reducing high real interest rates in the U.S. What does the asset view of exchange rates predict will happen if the U.S. lowers its budget deficit? What is the evidence from countries such as Mexico and
Suppose the Russian ruble devalues by 75% against the dollar. What is the percentage appreciation of the dollar against the ruble?
Suppose the dollar appreciates by 500% against the Russian ruble. How much has the ruble devalued against the dollar?
On March 29, 2007, the Indian rupee (Rs) was worth $0.023270. The next day, it was worth $0.022980.a. By how much has the rupee devalued against the dollar?b. By how much has the dollar appreciated against the rupee?

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Foundations Of Multinational Financial Management 6th Edition Alan C Shapiro, Atulya Sarin - Solutions

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