(26 points) (Ch. 10) Assessing Transaction Exposure. Your employer, Devil's Food, a large MNC based in the U.S., has asked you to assess its transaction exposure. Its projected cash flows are as follows for the next year: Calculate the Net Transaction Exposure (NTE). i) Assume that the movements in the DKK and the GBP are highly correlated. Provide your assessment as to your firm's degree of transaction exposure (as to whether the exposure is high or low). Substantiate your answer. (10 points) ii) Suppose the correlation is equal to 1.0, i.e., perfect positive correlation. Suppose the GBP appreciates to 1.725 GBPUSD. What is the new NTE? What is the change in NTE? (8 points) iii) Suppose the correlation is equal to -1.0 , i.e., perfect negative correlation. Suppose the GBP appreciates to 1.725 GBPUSD. What is the new NTE? (8 points) (16 points) (Ch. 10) Transaction Exposure. Buffalo Export Corp. is a U.S. firm that exports most of its products to Canada. It historically invoiced its products in CAD (Canadian dollar) to accommodate the importers. However, it was adversely affected when the CAD weakened against the U.S. dollar. Since Buffalo did not hedge, its CAD receivables were tonverted into a relatively small amount of USD. After a few more years of continual concern about possible exchange rate movements, Buffalo called its customers and requested that they pay for future orders in USD instead of CAD. At this time, the Canadian dollar was valued at 0.78 in CADUSD. The customers decided to oblige since the number of CAD to be converted into USD when importing the goods from Buffalo was still slightly smaller than the number of CAD that would be needed to buy the product from a Canadian manufacturer. Based on this situation, has transaction exposure changed for Buffalo Export Corp.? (8 points) Has economic exposure changed? ( 8 points) Explain. 5. (17 points) (Ch. 10) Measuring Economic Exposure. Using the following cost and revenue information shown for Kiwi Family Inc., a U.S.-based company, determine how the costs, revenue, and earnings items would be affected by three possible exchange rate scenarios for the New Zealand dollar against the U.S. dollar ("NZDUSD"): (1) 0.50 , (2) 0.55 , and (3) 0.60 . (Assume sales and costs will be unaffected by the exchange rate.) Assume that NZD earnings will be remitted to the U.S. parent company at the end of the period and there are no taxes. Revenue and Cost Estimates: Kiwi Family Inc. (in millions of USD and NZD) From its parent company's (located in the U.S.) perspective, Does the Kiwi Family behave like an exporter or an importer? Why? (17 points)