1.

Your employer has a subsidiary in Brazil which has high interest rates.Your firm considers borrowing dollars and hedging the exchange rate risk by selling the Brazilian real forward in exchange for dollars for the periods in which it would need to make loan payments in dollars. Assume that forward contracts on the real are available. What is the limitation of this strategy?

2.

ABC Company has the largest part of its operations in Japan but is based in the United States.ABC's Japanese competitors use more debt than ABC has historically used in its capital structure.The CFO has studied this situation and has recommended the firm needs to adjust its capital structure to be similar to its competitors.The CFOs analysis indicates the increased use of debt would generate large tax advantages.Additionally, it is the belief of the CFO that the market's perception of risk will not change due to the fact the amount of leverage being proposed will not be higher than any of its competitors.What are your comments regarding this strategy?

3.