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international financial management
Questions and Answers of
International Financial Management
The main activity of J&T Ltd is to buy old vehicles, which are sold after converting them into a saleable condition. At 28 February 2018, the end of the companys financial year,
Parrison Ltd is a manufacturing company. The company's inventory at 30 June 2018 includes the following items of work in progress:The company complies with IAS2 Inventories.(a) Define the term
IFRS16 Leases replaces IAS17 Leases for accounting periods beginning on or after 1 January 2019. The main aim of the new standard is to improve lessee accounting so that a lessee's financial
On 1 December 2014, Gebouw plc entered into a finance lease requiring the company to make payments of £785,000 each on 1 December 2014, 2015, 2016, 2017 and 2018.The fair value of the leased asset
Bakewall Ltd prepares annual financial statements to 31 December. On 1 August 2017 the company closed down one of its operations and classified the corresponding cash generating unit (CGU) as held
Stenberg plc is preparing its financial statements for the year ended 30 November 2018. On 1 May 2018, the company purchased a factory for the manufacture of optical disks, paying £24,000,000. The
An asset which cost £200,000 on 1 January 2016 is being depreciated on the straight line basis over a five year period with an estimated residual value of £40,000. The company which owns
There are two international standards which deal with goodwill. IAS38 does not allow internally generated goodwill to be recognised as an asset. Goodwill acquired in a business combination is dealt
The following information relates to three companies that use the revaluation model in relation to intangible assets and prepare annual financial statements to 31 December:(a) Company W acquired an
Accounting standard IAS16 Property, Plant and Equipment makes a number of recognition, measurement and disclosure requirements with regard to tangible non current assets. The term "non-current asset"
(a) Define the term "investment property". Explain why it is not generally appropriate to charge depreciation in relation to such a property.(b) Give three examples of properties (land or buildings)
J Ltd has been trading for many years, preparing financial statements to 31 March each year. As from 1 April 2017, the company decided to adopt a new accounting policy in relation to revenue
Chilwell Ltd prepares financial statements to 31 October each year. The company's trial balance at 31 October 2017 is as follows:The following information is also available:1. Land is
Assuming that today's date is 1 January 2018, calculate the present value of each of the following:(a) £50,000 to be received on 1 January 2021(b) £100,000 to be received on 1 January 2023(c)
IFRS1 First-time Adoption of International Financial Reporting Standards lays down the procedure which must be followed when an entity prepares its first financial statements that comply with IFRS
The International Accounting Standards Board (IASB) develops international standards by means of a "due process". The main stages of this process are listed in the Preface to
With the variables as in Problem 3, use put-call parity to determine the yen price of the corresponding dollar put option with the same maturity and same strike price.
Let the current spot rate be $1.25/€, and assume that one month from now the spot rate will be either $1.30/€ or $1.20/€. Let the dollar interest rate be 0.4% per month, and let the euro
What are Anti-globalists?
What was the euro price of the British pound on July 21, 2015? Why?
If the yen is selling at a premium relative to the euro in the forward market, is the forward price of EUR per JPY larger or smaller than the spot price of EUR per JPY?
Suppose the market price of a 20-year pure discount bond with a face value of $1,000 is $214.55. What is the spot interest rate for the 20-year maturity expressed in percentage per annum?
Suppose that in 2017, the Japanese rate of inflation is 2%, and the German rate of inflation is 5%. If the euro weakens relative to the yen by 10% during 2017, what would be the magnitude of the real
Why is the pass-through from changes in exchange rates to changes in the prices of products not one-for-one?
In March 2015, Ryanair, an Irish airline company, issued a €850 million 8-year bond. Look up more details about this issue. What type of bond is it? How was it rated? What is the credit spread
What is a dual-currency bond?
Why are Eurocredits not extended by one bank but by a large syndicate of banks?
Web question: Go to http://www.adrbnymellon.com and access the most recent Depositary Receipt Market Review. Determine which five firms with Depositary Receipts have the largest market
What are the three primary components of transaction costs in trading stocks?
If you borrow a foreign currency, what interest deduction would you receive on your taxes?
Go to the J.P. Morgan’s Best Practices: Foreign Exchange Risk Management, https://www.chase.com/content/dam/chasecom/en/commercial-bank/documents/foreign-exchange-risk-management.pdf. Do you agree
Explain intuitively how foreign currency options can be replicated with portfolios of borrowing and lending in the two currencies.
Why do the formulas for option prices not depend explicitly on the expected rate of appreciation of one currency relative to another currency?
Suppose that the price of the euro call option in Problem 1 were $0.03/€. How would you arbitrage between the market in risk-free assets and the foreign currency options market? What would you do
What is the Garman-Kolhagen model of foreign currency option pricing?
Let the continuously compounded six-month USD interest rate be 3% p.a., let the analogous JPY interest rate be 1% p.a., let the exchange rate be ¥98/$, and assume that the volatility of the
Suppose a trader sells a call option on £500,000 with a delta of 0.35 and buys another call option on £1,000,000 with different parameters whose delta is 0.55. What is his net exposure to small
Assume you are looking at prices from the NASDAQ OMX PHLX and that the price of a three-month European AUD call option with a strike price of 92 cents per Australian dollar is 3.2¢/AUD. Suppose
Suppose the implied volatilities expressed in percent per annum of yen call options against the dollar with maturities of one, two and three months are 9%, 10%, and 11%, respectively. If you thought
What is the theta of an option?
What is the implied volatility of an option?
Discuss different ways that dominant investors use to establish and maintain the control of the company with relatively small inv estments.
Explain ‘the wedge’ between the control and cash flow rights an d discuss its implications for corporate governance.
Studies show that the legal protection of shareholder rights varies a great deal across countries. Discuss the possible reasons why the English common law tradition provides the strongest and the
Following corporate scandals and failures in the U.S. and abroad, there is a growing demand for corporate governance reform. What should be the key objectives of corporate governance reform? What
The public corporation is owned by multitude of shareholders but managed by professional managers. Managers can take self-interested actions at the expense of shareholders. Discuss the conditions
The majority of major corporations are franchised as public corporations. Discuss the key strength and weakness of the ‘public corporation’. When do you think the public corporation as an
Recently, Mexico experienced large-scale trade deficits, depletion of foreign reserve holdings and a major currency devaluation in December 1994, followed by the decision to freely float the peso.
The U.S. Balance of Payments for year 2000.
Discuss the possible strengths and weaknesses of SDRs versus the dollar as the main reserve currency. Do you think the SDR should or could replace the U.S. dollar as the main global reserve currency.
Construct the balance of payment table for Germany for year 2010 which is comparable in format to Exhibit 3.1, and interpret the numerical data. You may consult International Financial Statistics
Explain how each of the following transactions will be classified and recorded in the debit and credit of the U.S. balance of payments:(1) A Japanese insurance company purchases U.S. Treasury bonds
Exhibit 3.6 indicates that in 1999, Germany had a current account deficit and at the same time a capital account deficit. Explain how this can happen.
Describe the balance-of-payments identity and discuss its implications under the fixed and flexible exchange rate regimes.
Since the early 1980s, foreign portfolio investors have pu rchased a significant portion of U.S. treasury bond issues. Discuss the short-term and long-term effects of foreigners’ portfolio
Explain how to compute the overall balance and discuss its significance.
Explain official reserve assets and its major components.
Explain how a country can run an overall balance-of-payments deficit or surplus.
Comment on the following statement: “Since the United States imports more than it exports, it is necessary for the United States to import capital from foreign countries to finance its current
In contrast to the United States, Japan has realized continuous current account surpluses. What c ould be the main causes for these surpluses? Is it desirable to have continuous current account
The United States has experienced continuous c urrent account deficits since the early 1980s. What do you think are the main causes for the deficits? What would be the consequences of continuous U.S.
Why would it be useful to examin e a country’s balance-of-payments data.
Define balance of payments.
Assess the possibility for the euro to become another glo bal currency rivaling the U.S. dollar. If the euro really becomes a global currency, what impact will it have on the U.S. dollar and the
Once capital markets are integrated, it is difficult for a country to maintain a fixed exchange rate. Explain why this may be so.
Discuss the criteria for a ‘good’ international monetary system.
In an in tegrated world financial market, a financial crisis in a country can be quickly transmitted to other countries, causing a global crisis. What kind of measures would you propose to prevent
There are arguments for and against the alternative exchange rate regimes. a. List the advantages of the flexible exchange rate regime. b. Criticize the flexible exchange rate
Explain the arrangements and workings of the European Monetary System (EMS).
Explain how special drawing rights (SDR) are constructed. Also, discuss the circumstances under which the SDR wa s created.
Suppose that the pound is pegged to gold at 6 pounds per ounce, whereas the franc is pegged to gold at 12 francs per ounce. This, of course, implies that the equilibrium exchange rate should be two
Discuss the advantages and disadvantages of the gold standard.
What were the main objectives of the Bretton Woods system.
Consider the no-trade input/output situation presented in the following table for Countries X and Y. Assuming that free trade is allowed, develop a scenario that will benefit the citizens of both
Explain the mechanism which restores the balance of payments equilibrium when it is disturbed under the gold standard.
When the euro was introduced in 1999, Greece was conspicuously absent from the list of the European Union member countries adopting the common currency. The country was not ready. In a few short
Nike, a company headquartered in Beaverton, Oregon, is a major force in the sports footwear and fashion industry, with annual sales exceeding $ 30 billions, more than half of which now come from
A foreign exchange trader with a U.S. bank took a short position of £5,000,000 when the $/£ exchange rate was 1.55. Subsequently, the exchange rate has changed to 1.61. Is this movement in the
Epic bribe scandal at Petrobras , a major oil company controlled by the Brazilian government, that broke out in 2015 shocked the economic and political system of Brazil. Put simply, the company
Explain Gresham’s Law.
Suppose you are interested in investing in shares of Samsung Electronics of Korea, which is a world leader in mobile phones, TVs, and home a ppliances. But before you make investment decision, you
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