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international financial management 14th

Questions and Answers of International Financial Management 14th

5 Assume that Australian and Japanese interest rates are initially equal but then Australian interest rates rise while Japanese interest rates remain constant.a How is the demand schedule for
4 Assume there is a sudden and substantial increase in Malaysian inflation while Chinese inflation remains low.a How is the demand schedule for Malaysian ringgit affected?b How is the supply schedule
3 Smart Banking Corp. can borrow A$5 million at 6 per cent annualised. It can use the proceeds to invest in Malaysian ringgit at 9 per cent annualised over a sixday period. The Malaysian ringgit is
2 A recent shift in the interest rate differential between Australia and Country A had a large effect on the value of Currency A. However, the same shift in the interest rate differential between
1 Briefly describe how various economic factors can affect the equilibrium exchange rate of the Japanese yen’s value with respect to that of the Australian dollar.
5 Assume that the franc’s depreciation over the year was attributed directly to central bank intervention.Explain the type of direct intervention that would place downward pressure on the value of
4 Based on your answer to question (2), how would Perth Framing’s cash flows be affected by the expected exchange rate movements? Explain.
3 Perth Framing believes international capital flows shift in response to changing interest rate differentials. Is there any reason why the changing interest rate differentials in this example will
2 Using the information provided, will Perth Framing expect the franc to appreciate or depreciate in the future? Explain.
1 Explain how the international trade flows should initially adjust in response to the changes in inflation(holding exchange rates constant). Explain how the international capital flows should adjust
16 Explain whether Australian exporters or importers with huge exposure to affected Asian countries would have suffered most during the crisis.The following discussion questions related to the Asian
15 Explain how an Australian resources company could have benefited from the declining value of Asian currencies?The following discussion questions related to the Asian crisis illustrate how the
14 During the Asian crisis, the currencies of many Asian countries declined even though their governments attempted to intervene with direct intervention or by raising interest rates.Given that the
13 Why do you think the depreciation of the Asian currencies adversely affected Australian companies? (There are at least three reasons, each related to a different type of exposure of some
12 Why do you think the values of bonds issued by Asian governments declined during the Asian crisis? Why do you think the values of Latin American bonds declined in response to the Asian crisis?The
11 During the Asian crisis, Hong Kong and China successfully intervened (by raising their interest rates) to protect their local currencies from depreciating. Nevertheless, these countries were also
10 Normally, a weak local currency is expected to stimulate the local economy. Yet, it appeared that the weak currencies of Asia adversely affected their economies. Why do you think the weakening of
9 On 26 August 1998, the day that Russia decided to let the ruble float freely, the ruble declined by about 50 per cent. On the following day, called ‘Bloody Thursday’, stock markets around the
8 During the Hong Kong crisis, the Hong Kong stock market declined substantially over a four-day period due to concerns in the foreign exchange market. Why would stock prices decline due to concerns
7 During the Asian crisis, why did the discount of the forward rate of Asian currencies change? Do you think it increased or decreased? Why?The following discussion questions related to the Asian
6 It is commonly argued that high interest rates reflect high expected inflation and can signal future weakness in a currency. Based on this theory, how would expectations of Asian exchange rates
5 The Asian crisis showed that a currency crisis could affect interest rates. Why did the crisis put upward pressure on interest rates in Asian countries? Why did it put downward pressure on US
4 During the Asian crisis, some local companies in Asia borrowed US dollars rather than local currency to support local operations. Why would they borrow US dollars when they really needed their
3 During the Asian crisis, direct intervention did not prevent depreciation of currencies. Offer your explanation for why the interventions did not work.The following discussion questions related to
2 Why do you think the Indonesian rupiah was more exposed to an abrupt decline in value than the Japanese yen during the Asian crisis (even if their economies experienced the same degree of
1 Was the depreciation of the Asian currencies during the Asian crisis due to trade flows or capital flows? Why do you think the degree of movement over a short period may depend on whether the
3 Why might the foreign exchange intervention strategies of the RBA be relevant to Australian MNCs and foreign governments, especially major trading partners of Australia?The website for
2 Review the minutes of recent meetings by RBA officials. Summarise at least one recent meeting that was associated with possible or actual intervention to affect the Australian dollar’s value.The
1 Use this website to review the outline of the RBA’s objectives. Summarise the mission of the RBA. How does this mission relate to intervening in the foreign exchange market?The website for
2 How would the performance of the Sports Exports Company be affected by the Bank of Japan’s policy of massive buying of Japanese yen in the foreign exchange market (assuming that it does not hedge
1 Forecast whether the Japanese yen will weaken or strengthen based on the information provided.Jim Logan, owner of the Sports Exports Company, is concerned about the value of the Japanese yen over
6 Instead of fixing the price of the Speedos in Thai baht, if Aussie Blades had fixed it in Australian dollars, explain the impact on Rolling Products’ sales and profits when the value of the baht
5 What do you think will happen to the Thai baht’s value when the swap arrangement is completed? How will this affect Aussie Blades?Recall that Aussie Blades, the Australian manufacturer of
4 What are some of the potential disadvantages for Thai levels of inflation associated with the floating exchange rate system that is now used in Thailand? Do you think Aussie Blades contributes to
3 If the Thai baht is virtually fixed with respect to the Australian dollar, how could this affect Australian levels of inflation? Do you think these effects on the Australian economy will be more
2 Did the intervention by the Thai Government constitute sterilised or non-sterilised intervention?What is the difference between the types of intervention? Which type do you think would be more
1 Did the intervention effort by the Thai Government constitute direct or indirect intervention? Explain.Recall that Aussie Blades, the Australian manufacturer of rollerblades, generates most of its
26 Impact of abandoning the euro a Explain why one country abandoning the euro could reduce the value of the euro, even if that country accounts for a very small proportion of the total production
25 Role of the ECB a Explain the dilemma that the ECB faces as it attempts to help countries with large budget deficits.b Describe the types of conditions that the ECB required when providing credit
24 Coordinated central bank intervention Assume that the United States has a weak economy and that the Fed wants to correct this problem by adjusting the value of the US dollar. The Fed is not
23 Central bank control over its currency’s value Assume that the Netherlands wants to change the prevailing spot rate of its currency (euro) in order to improve its economy, while Switzerland
22 Pegged exchange rates The United States, Canada and Australia commonly engage in international trade with each other. All the products traded can easily be produced in all three countries. The
21 Pegged currency and international trade Assume that New Zealand decides to peg its currency (the New Zealand dollar) to the Australian dollar and that the exchange rate will remain fixed. Assume
20 Pegged currency and international trade Assume the Hong Kong dollar (HK$) value is tied to the US dollar and will remain so. Last month, HK$1 = 0.25 Singapore dollars. Today, HK$1 = 0.30 Singapore
19 Pegged currencies Why do you think a country suddenly decides to peg its currency to the US dollar or some other currency? When a currency is unable to maintain the peg, what do you think are the
18 Effects of COVID-19 pandemic Within a few days of the declaration of COVID-19 as a pandemic by theWorld Health Organization in March 2020, the Reserve Bank of New Zealand cut interest rates by 75
17 Monitoring the Fed’s interventions Why do foreign market participants monitor the European Central Bank’s direct intervention efforts? How does the ECB attempt to hide its intervention
16 Leaving the European Union As a result of the United Kingdom’s plan to leave the European Union, the exchange rate of the UK pound declined sharply with respect to the euro.a Who are the
15 Indirect intervention During the Asian crisis (see Appendix 4 at the end of this chapter), some Asian central banks raised their interest rates to prevent their currencies from weakening, yet the
13 Effects of indirect intervention Suppose that the government of Japan increases one of its key interest rates. The values of several other Asian currencies are expected to change substantially
12 Sterilised intervention Explain the difference between sterilised and non-sterilised intervention.
10 Intervention effects on bond prices Australian bond prices are normally inversely related to Australian inflation. If the RBA planned to use intervention to weaken the Australian dollar, how might
9 Effects on currencies tied to the dollar The Hong Kong dollar’s value is tied to the US dollar. Explain how the following trade patterns would be affected by the depreciation of the Australian
8 Indirect intervention Why would the RBA’s indirect intervention have a stronger impact on some currencies than others? Why would a central bank’s indirect intervention have a stronger impact
5 Intervention effects Assume there is concern that Australia may experience a recession. How should the RBA influence the Australian dollar to prevent a recession? How might Australian exporters
2 Intervention with euros Assume that Germany, one of the European countries that uses the euro as its currency, would prefer that its currency depreciate against the Australian dollar. Can it apply
5 The Hong Kong dollar is pegged to the US dollar.Explain why this may be a problem for Chinese exporters of goods to Hong Kong.
4 Assume the country of Sluban ties its currency (the slu) to the Australian dollar and the exchange rate will remain fixed. Sluban frequently trades with the US and Australia. All traded products
3 Briefly explain why the RBA may attempt to strengthen the Australian dollar.
2 Assume the Reserve Bank of Australia believes that the Australian dollar should be weakened against the Korean won. Explain how the RBA could use direct and indirect intervention to weaken the
1 Explain why it would be virtually impossible to set an exchange rate between the Japanese yen and the Australian dollar and to maintain a fixed exchange rate.
2 Use the Yahoo! website to determine the cross exchange rate between the Chinese yuan and the Australian dollar. That is, determine how many yuan must be converted to an Australian dollar for
1 Go to the Yahoo! site for exchange rate data (https://finance.yahoo.com/currencies). Use the symbol (for example, AUDJPY=X) to search the currency pair.a What is the prevailing direct exchange rate
3 Is it wise for Jim to export footballs in Asian countries in order to reduce exchange rate risk? Explain.Each month, the Sports Exports Company (an Australian company) receives an order for
2 Explain how the Sports Exports Company is exposed to exchange rate risk and how it could use the forward market to hedge this risk.Each month, the Sports Exports Company (an Australian company)
1 Explain how the Sports Exports Company could utilise the spot market to facilitate the exchange of currencies. Be specific.Each month, the Sports Exports Company (an Australian company) receives an
5 Ben Holt proposes the following plan for a reduction in risk in Australian dollar cash flow. The 50 per cent net baht-denominated cash flows assumed to be received today will be invested in
4 The difference between the Thai baht interest rate(15 per cent) and the Australian dollar interest rate(8 per cent) is 7 per cent. If you anticipate that the Thai baht will depreciate by at least 7
3 Construct a spreadsheet to compare the cash flows resulting from two plans. Under the first plan, net bahtdenominated cash flows (received today) will be invested in Thailand at 15 per cent for a
2 If the net baht received from the Thailand operation are invested in Thailand, how will Australian operations be affected? (Assume that Aussie Blades is currently paying 10 per cent on Australian
1 One point of concern for you is that there is a trade-off between the higher interest rates in Thailand and the delayed conversion of baht into Australian dollars.Explain what this means.As a
27 Interest rates among countries As of today, the interest rates in countries X, Y and Z are similar. In the next month, Country X is expected to have a weak economy, while countries Y and Z are
26 Foreign exchange You have CNY1943 from your trip to China and could exchange them for Australian dollars at Shanghai airport. The Chinese yuan bid price and ask price at the airport foreign
25 Forward premium and discount Calculate the forward premium or discount on an annualised basis for the mid spot rate and mid 180-day forward rate in the following table:
24 Forward exchange rate Australian Universal Export Import, Pty Ltd will receive 1 million US dollars and pay 40 million Bangladeshi taka in three months. For the reduction in risk in Australian
23 Buying a foreign currency How many Thai baht will you pay to buy 1 million US dollars based on the following exchange rate quotations of WorldRemit Australia? Currency Symbol Bid rate Ask rate
22 Selling a foreign currency TorFX, a foreign exchange in Australia, currently provides the following exchange rates. How many Bangladeshi taka will you receive if you want to sell 7 million Chinese
21 Bid/ask percentage spread Calculate the bid/ask percentage spread for Thai baht in terms of US dollars from the following spot rate quotations that are available in the market: Currency Symbol Bid
20 Direct versus indirect exchange rates Assume that during this semester, the Chinese yuan appreciated against the Australian dollar. Did the direct exchange rate of the yuan increase or decrease?
19 Explaining variation in bid/ask spreads Go to the currency converter at https://au.finance.yahoo.com/currency-converter and determine the bid/ask spread for the euro. Then determine the bid/ask
18 Interpreting exchange rate quotations Today, you notice the following exchange rate quotations:(a) A$1 = 3 Malaysian ringgit, and (b) 1 Malaysian ringgit = 0.48 Singapore dollars. You need to
17 Interest rates Why do interest rates vary among countries? Why are interest rates normally similar for those European countries that use the euro as their currency? Offer a reason why the
16 International financial markets An Australia-based retailer has established two retail outlets in the city of Shenzhen, China, which has a population of 12.6 million.These outlets are massive and
15 Foreign exchange You just came back from Malaysia, where the Malaysian ringgit (MYR) was worth A$0.3561. You still have MYR500 from your trip and could exchange them for Australian dollars at the
14 International diversification Explain how the Asian crisis would have affected the returns to a US company investing in Asian stock markets as a means of international diversification.
13 Evolution of floating rates Briefly describe the historical developments that led to floating exchange rates as of 1973.
12 International markets What is the function of the international money markets? Briefly describe the reasons for the development and growth of the European money market. Explain how the
11 Cross exchange rate Assume the Malaysian ringgit is worth A$0.3546 and the Japanese yen is worth A$0.0081.What is the cross rate of the ringgit with respect to the yen? That is, how many yen equal
10 Indirect exchange rate If the direct exchange rate of the Singapore dollar is A$0.9612, what is the Singapore dollar’s indirect exchange rate? That is, what is the value of an Australian dollar
9 Direct and indirect quotes Define the following with an example:a a direct quote between the Australian dollar and the Malaysian ringgit, where Australia is designated as the home currency b an
8 Euro Explain the foreign exchange situation for countries that use the euro when they engage in international trade among themselves.
7 Effects of a forward contract How can a forward contract backfire?
6 Forward contract Wolfpack Corp. is an Australian fruit exporter that invoices its exports to Japan in Japanese yen. If it expects that the yen will appreciate against the Australian dollar in the
5 Bid/ask spread Compute the bid/ask percentage spread for Indian rupee retail transactions in which the bid rate is A$0.0197 and the ask rate is A$0.0221.
4 Bid/ask spread Utah Bank’s bid price for Malaysian ringgit is A$0.3567 and its ask price is A$0.3767.What is the bid/ask percentage spread?
3 Exchange rate effects on borrowing Explain how the appreciation of the Japanese yen against the Australian dollar would affect the return to an Australian company that borrowed Japanese yen and
2 Exchange rate effects on investing Explain how the appreciation of the Australian dollar against the Chinese yuan would affect the return to a Chinese company that invested in an Australian money
5 Briefly explain how MNCs can make use of each international financial market described in this chapter.
4 Why is the bid/ask spread of a 90-day forward contract wider than the bid/ask spread of a 30-day forward rate?
3 Compute the forward discount or premium for the Mexican peso with a 90-day forward rate of A$0.102 and a spot rate of A$0.10. State whether your answer is a discount or a premium.

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