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1)

Grupo Bimbo, headquartered in Mexico City, is one of the largest bakery companies in the world. On January 1st, when the spot exchange rate is MXN10.84 = USD1.00, the company borrows USD25.1 million from a New York bank for one year at 6.82% interest (Mexican banks had quoted 9.57% for an equivalent loan in Mexican pesos). During the year, U.S. inflation is 2.1% and Mexican inflation is 4.3%. At the end of the year the firm repays the dollar loan.

a. If Bimbo expected the spot rate at the end of one year to be that equal to purchasing power parity, what would be the cost to Bimbo of its dollar loan in peso-denominated interest?

b. What is the real interest cost (adjusted for inflation) to Bimbo, in peso-denominated terms, of borrowing the dollars for one year, again assuming purchasing power parity?

c. If the actual spot rate at the end of the year turned out to be MXN9.61 = USD1.00, what was the actual peso-denominated interest cost of the loan? (% rounded to 4 decimal)

2)

Chastain Corporation is trying to determine the effect of its inventory turnover ratio and days sales outstanding (DSO) on its cash conversion cycle. Chastain's 2018 sales (all on credit) were $299,000; its cost of goods sold is 75% of sales; and it earned a net profit of 4%, or $8,970. It turned over its inventory 6 times during the year, and its DSO was 32 days. The firm had fixed assets totaling $47,000. Chastain's payables deferral period is 44 days. Assume 365 days in year for your calculations.

1. Calculate Chastain's cash conversion cycle. Do not round intermediate calculations. Round your answer to two decimal places. ___days

2. Assuming Chastain holds negligible amounts of cash and marketable securities, calculate its total assets turnover and ROA. Do not round intermediate calculations. Round your answers to two decimal places.

Total assets turnover ___

ROA ___ %

3. Suppose Chastain's managers believe that the inventory turnover can be raised to 8.5 times. What would Chastain's cash conversion cycle, total assets turnover, and ROA have been if the inventory turnover had been 8.5 for 2018? Do not round intermediate calculations. Round your answers to two decimal places.

Cash conversion cycle ___ days

Total assets turnover ___

ROA ___ %

3)

North Bank has been borrowing in the U.S. markets and lending abroad, thereby incurring foreign exchange risk. In a recent transaction, it issued a one-year $1.60 million CD at 5 percent and is planning to fund a loan in British pounds at 7 percent for a 2 percent expected spread. The spot rate of U.S. dollars for British pounds is $1.440/1. a. However, new information now indicates that the British pound will appreciate such that the spot rate of U.S. dollars for British pounds is $1.43/1 by year-end. Calculate the loan rate to maintain the 2 percent spread. b. The bank has an opportunity to hedge using one-year forward contracts at 1.46 U.S. dollars for British pounds. Calculate the net interest margin if the bank hedges its forward foreign exchange exposure. c. Calculate the loan rate to maintain the 2 percent spread if the bank intends to hedge its exposure using the forward rates.