Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Please assist if possible, attached is a file with some questions, looking to verify and bounce of my answers to make sure my answers are
Please assist if possible, attached is a file with some questions, looking to verify and bounce of my answers to make sure my answers are correct. Thank you,
1. Abbott Laboratories, a large US pharmaceutical company, is considering exporting its insulin control drug to Indonesian medical institutions. The amount of the export sales would be for Rp1,650 million Indonesian rupiah. The amount of the sales will be for $175,000 at the current spot exchange rate of Rp9,450/$. Although the sale is not large compared to other export sales to other countries, Abbott would like to establish a market there. The company has a policy in place where sales must be settled for at least a minimum gross margin, in this case, a cash settlement of $168,000. The current 90-day forward rate is Rp9,950/$. Although this rate appeared unattractive, Abbott had to contact several major banks before even finding a forward quote on the rupiah. The currency experts have forecasted that the rupiah will hold relatively steady for the moment, possibly falling to Rp9,400/$ over the coming 90 to 120 days. a. Analyze the prospective sale and make a hedging recommendation if Abbott remains unhedged? b. Analyze the prospective sale and make a hedging recommendation if Abbott uses the forward hedge? 2. A U.S. company exported goods to a New Zealand company of the amount of NZ$600,000 and expects payment in 1 year. You are a consultant for this firm. You have the following information: U.S. deposit rate for 1 year U.S. borrowing rate for 1 year New Zealand deposit rate for 1 year New Zealand borrowing rate for 1 year New Zealand forward rate for 1 year New Zealand dollar spot rate = = = = = = 12% 13% 9% 11% $0.7400 $0.7390 a. Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars, given that the firm executes a forward hedge? b. Using the information above, what will be the approximate value of these exports in 1 year in U.S. dollars given that the firm executes a money market hedge? 3. North Face Inc. (NFI), imports active outdoor wear and equipment from the Best Fit Company (BFC) located in Canada. With the steady decline of the U.S dollar against the Canadian dollar NFI is finding a continued relationship with BFC to be an increasingly difficult proposition. In response to NFI's request, BFC has proposed the following risk-sharing arrangement. First, set the current spot rate as the base rate. As long as spot rates stay within 5% (up or down) NFI will pay at the base rate. Any rate outside of the 5% range, BFC will share equally with NFI the difference between the spot rate and the base rate. a. If the current spot rate is C$1.20/$, what are the upper and lower limits for trading to take place at C$1.20? b. If NFI has a payable of C$100,000 due today and the current spot rate is C$1.17/$, how much does NFC owe in U.S. dollars? 4. Alcoa, a US company, has a subsidiary in Malaysia. The Malaysia subsidiary has the following balance sheet denominated in the local Malaysian ringgit. The current exchange rate of Malaysian ringgit is MYR4 per $1. Assets Cash Accounts Receivables Inventory (value at cost) Inventory (at market value) Total current assets Plant and Equipment Accumulated depreciation Net Plant and equipment Total Assets Balance Sheet (in thousands MYR) Liabilities and Net worth 500 Accounts payable 600 Notes Payable 400 Other payables 800 2,300 Total current liabilities 100 200 1,000 1,300 2,400 (1,400) 1,000 Long-term debt Common Stock Retained Earnings Exchange gain or loss 800 1,000 200 - 3,300 Total Liabilities & Net worth 3,300 Assume the historical rate is MYR4 per $1, if the Malaysian ringgit devalues from MYR4 to MYR5 per $1, what would be the translation loss (gain) reported by the subsidiary for each of the following methods of translation: 1. 2. 3. 4. Currenton-current method, Monetaryon-monetary method Temporal method (Assume that Net Plant and equipment are not marked to market). Current rate methodStep by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started