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multinational business finance

Questions and Answers of Multinational Business Finance

Quotes for the U.S. dollar and Thai baht are as follows:Spot contract midpoint 1-year forward contract midpoint 1-year Eurodollar interest ratea. Your newspaper does not quote 1-year Eurocurrency
A foreign exchange dealer in Tokyo provides the following quotes for spot exchange and 3-month forward exchange between the Malaysian ringgit (MR) and the U.S. dollar.Bid (MR/$) Ask (MR/$)Spot 4.0040
Suppose that a basket of consumer goods has values and in currencies and , so that .Expected inflation is percent and percent over the foreseeable future.a. What are the expected price levels and and
Suppose and the 1-year forward rate is. The real interest rate on a risk-free government security is 2 percent in both the United Kingdom and the United States. The U.S. inflation rate is 5
The current spot exchange rate is and the 1-year forward rate is . The prime rate in the United States is 15 percent.a. What should the Japanese prime rate be?b. According to forward parity, by how
Suppose the spot exchange rate between Brazilian real and euros is . Calculate forward exchange rates at 1-year, 2-year, and 3-year horizons under these two scenarios.a. Yield curves in euros and
Given and the 180-day forward rate, what is the dollar forward premium? Based on the unbiased forward expectations hypothesis, by how much is the dollar expected to appreciate or depreciate over the
Do Equations (4.2) and (4.3) hold for forward exchange rates in the interbank currency market? That is, are the equalities and true in a liquid market with small transaction costs?
As a percentage of an arbitrary starting amount, about how large would transaction costs have to be to make triangular arbitrage between the exchange rates ,, and unprofitable?
Calculate the following cross exchange rates:a. If exchange rates are and , what is the exchange rate?b. The dollar is trading at and . What is the yen per franc rate, ?
Is interest rate parity a reliable relation in interbank markets?
Find a formula like Equation (3.1) for calculating a forward premium with currency d in the numerator. [Hint: Substitute and into Equation (3.1) to get currency d in the denominator, and then
You expect to receive £1 million in one year. Spot and forward rates are . The sale is invoiced in pounds.a. Identify your expected pound cash flow on a timeline. Draw a risk profile for this
Consider RiskMetrics' conditional volatility model for monthly returns What is today's estimate of conditional volatility given last month's conditional volatility percent and a recent change in the
percent.a. What is the closing spot rate in dollars per yen ?b. By what percentage does the dollar depreciate against the yen?
At time , the dollar-per-yen spot rate .The yen then appreciates
The Danish kroner is quoted in New York at spot, 30 days forward, $0.18500/DKK 90 days forward, and $0.18488/DKK 180 days forward. Calculate the forward discounts or premiums on the kroner.
In what way are these two quotes equivalent?””
Dollars trade at in the spot market. The 90-day forward rate is . What is the forward premium on the dollar in basis point terms? What is the forward premium as an annualized percentage rate?
Calculate appreciation or depreciation in each of the following:a. If the dollar depreciates 10 percent against the yen, by what percent does the yen appreciate against the dollar?b. If the dollar
Euro bid and ask prices on the Japanese yen are quoted direct in Paris at Bid and Ask. What are the corresponding indirect quotes for euros?
You have sold ¥104 million at a spot price of . One year later, you pay dollars to buy back ¥104 million at the prevailing spot rate of . How much have you gained or lost in dollars?
A foreign exchange dealer in Warsaw provides quotes for spot and 3-month forward rates for the Polish zloty against the dollar.Bid (PZ/$) Ask (PZ/$)Spot 4.0040 4.0200 3-month forward 3.9690 3.9888a.
marks.a. What was the appreciation or depreciation of the dollar between 1984 and 1987? Between 1987 and 1992? Between 1992 and 1997?b. What was the appreciation of the mark between 1984 and 1987?
marks. In 1997, the dollar was again worth
In 1984, the number of German marks required to buy one U.S. dollar was 1.80. In 1987, the U.S. dollar was worth 2.00 marks. In 1992, the dollar was worth
Today's spot rate is . The 90-day forward rate is .a. Calculate the forward premium on Japanese yen in basis points and as a percentage premium or discount over the 90-day period.b. Calculate the
is quoted as “ Bid and Ask.” The six-month forward rate is quoted as “ Bid and Ask.” Assume you reside in the United States. Calculate forward quotes for the Canadian dollar as an annual
You want to buy Swedish krona (SKr). Your bank quotes “Bid and .” What would you pay in dollars if you bought SKr10,000,000 at the current spot rate?
Citigroup quotes Danish kroner as “DKK5.62/$ Bid and DKK5.87/$ Ask.”a. Which currency is Citigroup buying at the bid rate, and which currency is Citigroup selling at the offer rate?b. What are
Define liquidity.
What were the causes and consequences of the global crisis of 2008?
How would an economist categorize exchange rate systems?How would the IMF make this classification? In what ways are they the same? How are they different?
How has globalization in markets for goods and services affected world trade? How has globalization in financial markets affected world trade?
Do countries tend to export more or less of their gross domestic product today than in years past? What are the reasons for this trend?
How is multinational financial management different from domestic financial management?
The following are the annual returns for the ordinary shares of Court plc and for a representative equity price index:(a) What is the beta for Court plc’s ordinary shares?(b) If the risk-free rate
La Mer plc has one asset, a luxury yacht, which is chartered to parties of rich holidaymakers.Profits of the business over the next few years are expected to be £140 000 p.a. La Mer is financed
A business has in existence 4m ordinary £1 shares whose current market price is £1.80 each.It wishes to raise £1.2m by a rights issue at £1.50 per share. The number of shares to be issued will be
To see how the MM assertion would work in the case of La Mer, let us assume that the business raised the £1m for the second vessel by issuing a 10 per cent debenture (that is, borrowing at 10 per
Consider two businesses, High plc and Low plc. Their cost structures are as follows:For a range of sales revenue figures, operating results would be as shown in Table 11.2.The table shows that the
PR Industries plc, a major listed conglomerate, is considering acquiring an interest in Howard Pope Ltd, an unlisted business that has been trading for about 40 years as a manufacturer of domestic
The balance sheet of E Ltd is as shown below. What is the value of each E Ltd share? Balance sheet of E Ltd at 31 December Sources of finance (claims) Ordinary shares of 1 each Retained profit Total
Fortunate plc’s capital structure (taken from the balance sheet) is as follows:The business pays corporation tax at the rate of 50 per cent and is expected to earn a consistent annual profit,
Vocalise plc has recently assessed a new capital investment project that will expand its activities. This project has an estimated expected net present value of £4m. This will require finance of
Da Silva plc’s shares are not traded in any recognised market. Its sole activity is saloon car hire. It is financed by a combination of 2 million £0.50 ordinary shares and a £1.5m bank loan. Very
Images plc is an all-equity financed, Stock Exchange listed business. It has been a steady profit and cash flow generator over recent years, and it has distributed all of its after-tax profit as
Alcantage Ltd owns a chain of dry-cleaning shops in South Wales. A UK-wide dry-cleaning business is considering making an offer to the shareholders of Alcantage Ltd with the idea of obtaining all the
Finn Engineering Ltd is an unlisted business. Ten members of the Finn family own most of the shares, but there are six senior managers who have very small holdings.The most recent annual report
Opus Soft Drinks Ltd (‘Opus’), an unlisted business, produces a range of mineral waters, mixers and fruit juices. Opus was formed in the 1980s by a consortium of listed brewery businesses to
The following is a highly abbreviated balance sheet of a business that has been trading for some period of time and which has retained at least some of its profitsIt is open to the business, with
Describe examples of business and government capital projects in your community.Bridges and road repairs. School buildings and libraries. Buses and fire trucks. This is just a partial list of New
Conduct an Internet search to obtain information on: (a) the capital budgeting activities of governments, and (b) the current value of municipal bonds issued by New York City.Bridges and road
True or False? Capital spending refers to payment by companies for current operating expenses.
Purchase of new machinery to substitute for outdated equipment is an example of a ? project.a. cost-savingb. replacementc. government-requiredd. social benefit
True or False? Mutually exclusive projects allow a company to accept more than one project.
Which of the following would be complementary projects?a. a delivery truck and a customer service officeb. a day care center and a new factoryc. a reconstructed bridge and highway resurfacingd.
Visual Art Create a poster or computer presentation with photos and other visuals representing the five main types of capital projects.
Economics Research capital spending to determine how this economic activity creates jobs and other economic benefits. Prepare a short written or oral summary.
Law Research government regulations that can result in a need for capital spending by companies.
Environment Observe government-required and social-benefit capital projects in your community that help the environment. What other types of capital projects could be beneficial for reducing air and
According to financial theory, the major goal of a business organization should bea. higher salesb. lower customer complaintsc. a high market valued. a low level of debt
True or False? Projects with a higher risk will usually be evaluated with a lower cost of capital.
A common benefit of debt isa. lower risk than equityb. interest payments reduce the amount of taxesc. stockholders may not receive their dividendsd. reduced chance of company bankruptcy
True or False? If a company has no debt, its WACC would be the same as its cost of equity.
Visual Art Using photos and other visuals, create a flowchart to communicate the steps of the capital budgeting process.
Communication Interview a person who works for a nonprofit organization. Obtain information about their capital spending and the process used to analyze capital projects.
Research The cost of debt is related to bond yields. Using online or library resources, obtain current data for the rate investors are earning on corporate bonds for some companies of your choice.
Communication Talk to five people to ask them about the risks they consider when investing in stock. What were the major considerations mentioned? Were the answers from some of the people similar?
True or False? The payback method is common in companies due to the ease of its use.
The most accepted method for evaluating capital projects isa. paybackb. net present valuec. internal rate of returnd. the risk analysis process
Which of the following NPV elements is most accurate because it requires the least estimating?a. cash flowsb. start-up costsc. riskd. cost of capital
In some countries, being expected to hire family members before others would be an example of ? risk.a. geographicb. economicc. culturald. political
Communication Select a possible capital project. Create a presentation(using photos, ads, online articles, and other visuals) to communicate the (a) initial costs, (b) cash flows, and (c) cost of
Culture Talk with a person who has lived or worked in another country. Find information about capital projects in that culture.How do businesses and governments determine which projects to implement?
Research Conduct Internet or library research to obtain additional information about types of risks and how risks are analyzed for capital budgeting decisions.
Geography Locate a map for a region of the world. Describe geographic factors that could create a risk for companies doing business in that area.
What are some of the benefits of this capital project?2006, Toshiba, a Japanese company, announced construction of a new semiconductor production facility in the Bangkadi Industrial Park, about 35
What analysis process did the company likely use when considering this project?2006, Toshiba, a Japanese company, announced construction of a new semiconductor production facility in the Bangkadi
Conduct an Internet search about Toshiba. Obtain updated information about this production facility and other company activities.2006, Toshiba, a Japanese company, announced construction of a new
A company in which decisions are made by top-level managers is a? organization.a. centralizedb. decentralizedc. horizontald. vertical
True or False? Decentralized organizations usually have managers making decisions in different geographic regions.
Horizontal integration allows a company toa. reduce risk by selling a wide variety of productsb. combine with other companies in a similar businessc. provide local managers with decision-making
True or False? A diversified company usually has higher risk than a non-diversified organization.
Visual Art Using photos, ads, packages, labels, or other visuals, create a presentation to communicate the characteristics of (a) centralized and decentralized organizations, and (b) horizontal and
Law Horizontal mergers can result in a monopoly with reduced competition and few consumer choices. Obtain information about monopolies and antitrust laws, which are designed to prevent
Technology Find examples of online B2C and B2B business activities.Describe the elements of these two types of business activities.
Research Using Internet or library sources, locate an example of a joint venture. Describe the partnership and explain the benefits for the companies involved.
Match the terms listed with the definitions. Discount rate at which the net present value is zeroa. capital projectb. centralized organizationc. complementary projectsd. cost of capitale. cost of
Match the terms listed with the definitions. Business decisions are made at lower levels of the organizationa. capital projectb. centralized organizationc. complementary projectsd. cost of capitale.
Match the terms listed with the definitions. Acceptance of one project does not allow acceptance of othersa. capital projectb. centralized organizationc. complementary projectsd. cost of capitale.
Match the terms listed with the definitions. Two or more projects that are dependent on one anothera. capital projectb. centralized organizationc. complementary projectsd. cost of capitale. cost of
Match the terms listed with the definitions. Agreement between two or more companies to share a business projecta. capital projectb. centralized organizationc. complementary projectsd. cost of
Match the terms listed with the definitions. Business decisions are made at company headquartersa. capital projectb. centralized organizationc. complementary projectsd. cost of capitale. cost of
Match the terms listed with the definitions. Construction or purchase of a longterm asset, such as buildings and equipmenta. capital projectb. centralized organizationc. complementary projectsd. cost
Match the terms listed with the definitions. Intangible assets used by companiesa. capital projectb. centralized organizationc. complementary projectsd. cost of capitale. cost of debtf. cost of
Match the terms listed with the definitions. Rate of return required by creditorsa. capital projectb. centralized organizationc. complementary projectsd. cost of capitale. cost of debtf. cost of
Match the terms listed with the definitions. Present value of cash flows for a project minus the initial investmenta. capital projectb. centralized organizationc. complementary projectsd. cost of
Match the terms listed with the definitions. Offering of a variety of products or servicesa. capital projectb. centralized organizationc. complementary projectsd. cost of capitale. cost of debtf.
A government-required capital project would bea. new machinery to lower operating costsb. pollution control equipment to reduce water wastec. development of a new product to sell in South Americad. a

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