Exercise 1, Exercise 6 and 7 below…

7. Refer to Exhibit 9-3. This exhibit presents P/E ratios for public companies in various countries. What factors might explain the differences in P/E ratios that you observe?

Chapter 11

Q7) Trojan Corporation USA borrowed 1,000,000 New Zealand dollars (NZ$) at the beginning of the calendar year when the exchange rate was $0.60 = NZ$1. Before repaying this one-year

loan, Trojan learns that the NZ dollar has appreciated to $0.70 = NZ$1. It discovers, also,

that its New Zealand subsidiary has an exposed net asset position of NZ$ 3,000,000, which will

produce a translation gain upon consolidation. What is the amount of the exchange gain or loss

that will be reported in consolidated income if:

a. the U.S. dollar is the foreign operation’s

functional currency?

b. the New Zealand dollar is the foreign

operation’s functional currency and Trojan

Corporation.designates the New Zealand

dollar borrowing as a hedge of the New

Zealand affiliate’s positive exposure?

Q8) On April 1, Anthes Corporation, a calendar-yearU.S.Electronics manufacturer, invests 30 million

yen in a three-month yen-denominated CD with a fixed coupon of 8 percent. To hedge against the depreciation of the yen prior to maturity, Anthesdesignates its accounts payable due to the SandoCompany as a hedge. Anthes Corporation. Purchased 32.5 million yen worth of computer

chips on account paying 10 percent down, the balance to be paid in three months. Interest at 8

percent per annum is payable on the unpaid foreign currency balance. The U.S. dollar/Japanese

yen exchange rate on April 1 was $1.00 = \100; on July 1 it was $ 1.00 = \90.

Required: Prepare dated journal entries in

U.S. dollars to record the incurrence and

settlement of this foreign currency transaction

assuming that the hedge is deemed highly

effective in reducing Alexaa’s FX risk.

9) On June 1, ACL International, a U.S. confectionery products manufacturer, purchases on

account bulk chocolate from a Swiss supplier for 166,667 Swiss francs (CHF) when the spot

rate is $0.90 = CHF 1. The Swiss franc payable is due on September 1. To minimize its exposure

to an exchange loss should the franc appreciate relative to the dollar prior to payment,

ACL International acquires a forward contract to exchange $103,334 for francs on

September 1 at a forward rate of $0.92 = CHF 1.

Required: Given the following exchange rate information, provide journal entries to account

for the forward exchange contract on June 1,June 30, and September 1. The company closes

its books quarterly.June 30 spot rate $0.91 = CHF 1September 1 spot rate $0.93 = CHF 1

What is the effective dollar cost of the Swiss chocolate purchase in Exercise 7? Show your

calculations.