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international financial management 14th

Questions and Answers of International Financial Management 14th

15 Hedging continual exposure Clearlake Limited produces its products in its factory in Thailand and exports most of the products to Singapore each month.The exports are denominated in Singapore
14 Assessing economic exposure Harvey Limited plans to create and finance a subsidiary in Malaysia that produces computer components at low cost and exports them to other countries. It has no other
13 Managing economic exposure St Paul Co. does business in the United States and New Zealand. In attempting to assess its economic exposure, it compiled the following information:a St Paul’s US
12 Comparing degrees of translation exposure Coopers is an Australian brewery with annual export sales to Singapore of about S$500 million. Its main competitor is Tooheys, also based in Australia,
11 Comparing degrees of economic exposure Cochlear Limited and CSL Limited are Australia-based MNCs with subsidiaries in the United States that distribute medical products (produced in Australia) to
10 Effective hedging of translation exposure Would an MNC with subsidiaries in developed countries be better able to effectively hedge its given level of translation exposure compared to an MNC with
9 Limitations of hedging translation exposure Bartunek Co. is an Australia-based MNC that has Chinese subsidiaries and wants to hedge its translation exposure to fluctuations in the Chinese yuan’s
8 Hedging translation exposure Explain how a company can hedge its translation exposure.
7 COVID-19 and economic exposure An Australian exporter of wine is adversely affected in the export markets due to weak economic conditions abroad and a stronger Australian dollar. It prices all its
6 Exchange rate effects on earnings Explain how an Australia-based MNC’s consolidated earnings are affected when foreign currencies appreciate.
5 Trade-offs when reducing economic exposure When an MNC restructures its operations to reduce its economic exposure, it may sometimes forgo economies of scale. Explain.
4 Reducing economic exposure Albany Corp. is a USbased MNC that has a large government contract with Australia. The contract will continue for several years and generate more than half of Albany’s
3 Reducing economic exposure UVA Co. is a New Zealand-based MNC that obtains 40 per cent of its foreign supplies from Thailand. It also borrows Thailand’s currency (the baht) from Thai banks and
2 Reducing economic exposure Nufarm Limited is an Australia-based MNC that obtains 10 per cent of its supplies from European manufacturers. Sixty per cent of its revenues are due to exports to
1 Economic versus transaction exposure For each of the following, determine whether the company has economic exposure or transaction exposure.a An increase in the Australian dollar’s value hurts an
6 Lincolnshire Co. is an Australian company that exports 80 per cent of its total production of goods to Asian countries. Lincolnshire denominates all its exports in Australian dollars. Kalafa Co.
5 Everhart Co. has substantial translation exposure in European subsidiaries. The treasurer of Everhart Co.suggests that the translation effects are not relevant because the earnings generated by the
4 Pacific Corp. is an Australian company with a subsidiary in the United Kingdom. It expects that the pound will depreciate this year. Explain Pacific Corp.’s translation exposure. How could
3 CSL Limited exports to other countries but denominates its sales in Australian dollars. Is it subject to economic exposure?
2 Using the information in question (1), give a possible disadvantage of offsetting exchange rate exposure from the export business.
1 BlueScope Steel purchases iron ore from Australian sources and uses it to make steel products that are exported to Japan. BlueScope prices its products in Japanese yen and is concerned about the
2 The following website provides exchange rate movements against the US dollar over recent months:https://www.federalreserve.gov/data.htm. Based on the exposure of the MNC you assessed in question
1 The following website contains the annual reports of many MNCs: http://www.annualreportservice.com.Review an annual report of your choice. Look for any comments in the report that describe the
5 What is the break-even strike price between the put option and forward rate hedging strategy?Jim Logan, owner of the Sports Exports Company, will be receiving 2,000,000 Japanese yen one month from
4 Summarise the results of Australian dollars received based on an unhedged strategy, a put option strategy and a forward hedge strategy. Select the strategy that you prefer based on the information
3 Determine the amount of Australian dollars received by the Sports Exports Company if a forward hedge is used to hedge receivables in one month under each of the two exchange rate scenarios.Jim
2 Determine the amount of Australian dollars received by the Sports Exports Company if a put option is used to hedge receivables in one month under each of the two exchange rate scenarios.Jim Logan,
1 Determine the amount of Australian dollars received by the Sports Exports Company if the receivables to be received in one month are not hedged under each of the two exchange rate scenarios.Jim
10 Given Aussie Blades’ exporting agreements, are there any long-term hedging techniques Aussie Blades could benefit from? For this question only, assume that Aussie Blades incurs all of its costs
9 Could Aussie Blades modify its payment practices for the Thai imports in order to reduce its transaction exposure? What is the trade-off of such a modification?Aussie Blades, Pty Ltd has recently
8 Could Aussie Blades modify the timing of the Thai imports in order to reduce its transaction exposure?What is the trade-off of such a modification?Aussie Blades, Pty Ltd has recently decided to
7 Would any of the hedges you compared in question (3)for the British pounds to be received in 90 days require Aussie Blades to overhedge? Given Aussie Blades’exporting arrangements, do you think
6 In general, do you think it is easier for Aussie Blades to hedge its inflows or its outflows denominated in foreign currencies? Why?Aussie Blades, Pty Ltd has recently decided to expand its
5 Calculate the break-even rate between the forward hedge and the money market hedge for the British pound. Which hedge (forward hedge or money market hedge) is appropriate based on the break-even
4 Calculate the break-even rate between the put options hedge and the money market hedge for the British pound. Which hedge (put options hedge or money market hedge) is appropriate based on the
3 Using a spreadsheet, compare the hedging alternatives for the British pound receivables with a scenario under which Aussie Blades remains unhedged. Do you think Aussie Blades should hedge or remain
2 Calculate the break-even rate between the forward hedge and the money market hedge for the Thai baht.Which hedge (forward hedge or money market hedge)is appropriate based on the break-even rate for
1 Using a spreadsheet, compare the hedging alternatives for the Thai baht with a scenario under which Aussie Blades remains unhedged. Do you think Aussie Blades should hedge or remain unhedged? If
60 Estimating the hedged cost of payables Grady Co.is a manufacturer of hockey equipment in Singapore, and it will need 3 million Australian dollars in one year to pay for imported supplies. The
59 Cross-hedging strategy Assume that the country of Dreeland has a currency (called the dree) that tends to move in tandem with the Thai baht (THB) and is expected to continue to move in tandem with
58 Comparison of hedging techniques Today, the spot rate of the Australian dollar is S$0.79. The one-year forward rate is S$0.75. A one-year call option on Australian dollars exists with a premium of
57 Long-term hedging San Fran Co. imports products.It will pay 5 million Swiss francs for imports in one year. Mateo Co. will also pay 5 million Swiss francs for imports in one year. San Fran Co. and
56 Long-term hedging Rebel Co., an Australian company, has a contract with the government of Malaysia and will receive payments of 100,000 Malaysian ringgit in exchange for consulting services at the
55 Forward versus option hedge Assume that interest rate parity exists. Today, the one-year interest rate in Japan is the same as the one-year interest rate in Australia. You use the international
54 Money market versus put option hedge Narto Co., a Singaporean company, exports to Australia and expects to receive 500,000 Australian dollars in one year. The one-year Singapore interest rate is 5
53 Long-term forward contracts Assume that interest rate parity exists. The annualised interest rate is presently 5 per cent in Australia for any term to maturity and is 13 per cent in India for any
52 Comparison of hedging techniques You own a Singaporean exporting company and will receive 10 million Australian dollars in one year. Assume that interest parity exists. Assume zero transaction
51 Hedging with straddles versus strangles (See Appendix 12.) Refer to the previous problem. Assume that Brooks believes the cost of a long straddle is too high. However, call options with an
50 Hedging with straddles (See Appendix 12.) Brooks, Pty Ltd imports wood from Morocco. The Moroccan exporter invoices in Moroccan dirham. The current exchange rate of the dirham is A$0.10. Brooks
49 Hedging with a bear spread (See Appendix 12.)The Australia-based Marson, Pty Ltd has some customers in Canada and frequently receives payments denominated in Canadian dollars (C$). The current
48 Hedging with a bull spread (See Appendix 12.) Evar Imports, Inc. buys chocolate from New Zealand and resells it in Singapore. It just purchased chocolate invoiced at NZ$62,500. Payment for the
47 Hedging with forward versus options contracts Assume interest rate parity exists. Today, the one-year interest rate in Australia is the same as the one-year interest rate in Malaysia. Utah Co.
46 Timing the hedge Red River Co., a Singaporean company, purchases imports that have a price of 400,000 Australian dollars, and it has to pay for the imports in 90 days. It will use a 90-day forward
45 Long-term hedging with forward contracts Tampa Co. will build aeroplanes and export them to Malaysia for delivery in three years. The total payment to be received in three years for these exports
44 Overhedging An Australian company, Globe International, is about to order supplies from China that are denominated in Chinese yuan. It has no other transactions in China and will not have any
43 Hedging decision Indiana Co. expects to receive 5 million Australian dollars in one year from exports, and it wants to consider hedging its exchange rate risk. The spot rate of the Australian
42 Forecasting cash flows and hedging decision Virginia Co. has a subsidiary in Hong Kong and in Thailand. Assume that the Hong Kong dollar (HK$) is pegged at US$0.13 per Hong Kong dollar and it will
41 Forecasting from regression analysis and hedging You apply a regression model to annual data in which the annual percentage change in the Australian dollar is the dependent variable, and INF
40 Forecasting with IFE and hedging Assume that Calumet Co. will receive 10 million Malaysian ringgit in 15 months. It does not have a relationship with a bank at this time and therefore cannot
39 Hedging decision You believe that IRP presently exists. The nominal annual interest rate in India is 14 per cent. The nominal annual interest rate in the Australia is 3 per cent. You expect that
38 Forward versus option hedge As the treasurer of Tempe Corp., you are confronted with the following problem. Assume the one-year forward rate of the Singapore dollar (S$) is A$1.59. You plan to
37 Exposure of Australian importers If you were an Australian importer of products from Europe, explain whether a weak Australian economy would cause you to hedge your payables (denominated in euros)
36 Techniques for hedging receivables SMU Corp. has future receivables of 4 million New Zealand dollars(NZ$) in one year. It must decide whether to use options or a money market hedge to hedge this
35 Comparison of techniques for hedging receivables a Assume that Carbondale Co. expects to receive 500,000 Singapore dollars in one year. The existing spot rate of the Singapore dollar is A$0.90.The
34 Call options hedge using probability Wesfarmers has developed the following probability distribution for the spot rate of the Indian rupee (INR) against the Australian dollar (A$) in six months to
33 Account receivable money market hedging proceeds Australian Global Exports will receive 2.65 million Chinese yuan (CNY) from its Chinese importer in one year. To avoid transaction exposure, the
32 Account payable money market hedging costs Coleman Co., an Australian company, will pay 1.58 million Malaysian ringgit (MYR) to its Malaysian supplier in one year. To avoid transaction exposure,
31 Hedging during a crisis Describe how a crisis in Asia could reduce the cash flows of an Australian company that exports products (denominated in Australian dollars) to Asian countries. How could
30 Long-term hedging Since Obisbo, Inc. conducts much business in Japan, it is likely to have cash flows in yen that will periodically be remitted by its Japanese subsidiary to the Australian parent.
29 The long-term hedge dilemma Bath Co., which relies on exporting, denominates its exports in pesos and receives pesos every month. It expects the peso to weaken over time. Bath recognises the
28 Forward hedging Wedco Technology of Sydney, Australia exports plastics products to China.Wedco decided to price its exports in Australian dollars.Telematics International, Inc. of Perth, Australia
27 Hedging payables with currency options Malibu Inc., is a Singaporean company that imports Australian goods. It plans to use call options to hedge payables of 100,000 Australian dollars in 90
26 Continuous hedging Cornell Co. purchases computer chips denominated in Chinese yuan on a monthly basis from a Chinese supplier. To hedge its exchange rate risk, this Australian company negotiates
25 Forward hedging Explain how a Malaysian company can use the forward market to hedge periodic purchases of Australian goods denominated in Australian dollars. Explain how a French company can use
24 Forward versus options hedge on receivables You are an exporter of goods to Australia, and you believe that today’s forward rate of the Australian dollar substantially underestimates the future
23 Forward versus options hedge on payables If you are a Chinese importer of Australian goods and you believe that today’s forward rate of the Australian dollar is a very accurate estimate of the
22 Real cost of hedging Would Montana Co.’s real cost of hedging Japanese yen receivables have been positive, negative or about zero on average over a period in which the US dollar weakened
21 Implications of IRP for hedging If interest rate parity exists, would a forward hedge be more favourable, the same as or less favourable than a money market hedge on euro payables? Explain.
20 Forward hedge Would Oregon Co.’s real cost of hedging Australian dollar payables every 90 days have been positive, negative or about zero on average over a period in which the dollar weakened
19 Hedging with put options As the treasurer of Tucson Corp. (a US exporter to New Zealand), you must decide how to hedge (if at all) future receivables of 250,000 New Zealand dollars 90 days from
18 Currency diversification Explain how a company can use currency diversification to reduce transaction exposure.
17 Cross-hedging Explain how a company can use crosshedging to reduce transaction exposure.
16 Leading and lagging Under what conditions would Zona Co.’s subsidiary consider using a leading strategy to reduce transaction exposure? Under what conditions would Zona Co.’s subsidiary
15 Long-term hedging How can a company hedge longterm currency positions? Elaborate on each method.
14 Currency options Can Brooklyn Co. determine whether currency options will be more or less expensive than a forward hedge when considering both hedging techniques to cover net payables in euros?
13 Currency options Relate the use of currency options to hedging net payables and receivables. That is, when should currency puts be purchased and when should currency calls be purchased? Why would
12 Hedging decision on receivables Assume the following information:180-day Australian interest rate 8%180-day British interest rate 9%180-day forward rate of British pound A$1.50 Spot rate of
11 Hedging on payables Assume the following information:Assume that Australia’s leading retailer, Harvey Norman, will need 300,000 ringgit in 90 days. It wishes to hedge this payables position.
10 Forward hedge decision Kayla Co. imports products from India, and it will make payment in rupees in 90 days. Interest rate parity holds. The prevailing interest rate in India is very high, which
9 Real cost of hedging payables Assume that Suffolk Co. negotiated a forward contract to purchase 200,000 Malaysian ringgit in 90 days. The 90-day forward rate was A$0.3545 per Malaysian ringgit. The
8 Benefits of hedging If hedging is expected to be more costly than not hedging, why would a company even consider hedging?
7 Real cost of hedging payables Assume that the Australian company Loras Corp. imports goods from New Zealand and needs 100,000 New Zealand dollars 180 days fromnow. It is trying to determine whether
6 Hedging with forward contracts Explain how an Australian company could hedge net receivables in Malaysian ringgit with a forward contract. Explain how an Australian company could hedge payables in
5 Hedging with futures Explain how an Australian company could hedge net receivables in euros with futures contracts. Explain how an Australian company could hedge net payables in Japanese yen with
4 Net transaction exposure Why should an MNC identify net exposure before hedging?
1 Hedging in general Explain the relationship between this chapter on hedging and the previous chapter on measuring exposure.
8 Viner Co., an Australian company, has developed the following probability distribution for the spot rate of the Chinese yuan (CNY) against the Australian dollar(A$) in six months to buy put options
7 A financial officer of a company must choose among alternative strategies to manage transactions exposure.Which two main decision criteria must be used?Explain.
6 Hopkins Co. transported goods to Australia and will receive 2 million Australian dollars in three months. It believes the three-month forward rate will be an accurate forecast of the future spot
5 Using the information from question (4), suggest how Sanibel Co. could more effectively insulate itself from the possible long-term appreciation of the British pound.

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