INTERNATIONAL FINANCE

1) BestBuy established a retail outlet in Ho Chi Ming City, Vietnam, which has a population of some 3 million. This outlet are massive and contain imports in

addition to products purchased locally. As BestBuy generates earnings beyond what it needs in Vietnam it may remit those earnings back to the United States. BestBuy is likely to build additional outlets in Southeast Asia or in other cities in the future. a. Explain how the W BestBuy outlets in Vietnam would use the spot market in foreign exchange. b. Explain how BestBuy might utilize the international money market when it is establishing other stores in Asia. c. Explain how BestBuy could use the international bond market to finance the establishment of new outlets in other foreign markets.

2) Assume that there are substantial capital flows among Mexico, the U.S., and the UK. If interest rates in Mexico decline to a level below the U.S. interest rate, and inflationary expectations remain unchanged, how could this affect the value of the Peso against the U.S. dollar? How might this decline in Mexico's interest rates possibly affect the value of the Peso against the pound sterling?

3) Assume that several European countries that use the euro as their currency experience higher inflation than the United States, while two other European countries that use the euro as their currency experience lower inflation than the United States. According to PPP, how will the euro's value against the dollar be affected?

4) The Taiwanese (NTD) dollar's value is tied to the U.S. dollar. Explain how the following trade patterns would be affected by the appreciation of the NTD against the dollar: (a) Tawainese exports to Japan and (b) exports to the United States.

5) Assume that a July futures contract on Mexican pesos was available in January for $.09 per unit. Also assume that forward contracts were available for the same settlement date at a price of $.092 per peso. How could speculators capitalize on this situation, assuming zero transaction costs? How would such speculative activity affect the difference between the forward contract price and the futures price?

International Financial Management, 14th edition Jeff Madura, South-Western (Cengage Learning), 2021