Question 2 [20 marks] Question 3 [10 marks] Use the following information to answer questions (a) - (c). Suppose that exchange rates for British pound (GBP) and Japanese yen (JPY), respectively, are as Global Motor, Inc. ("GM"), a U.S. based MNC, consists of three divisions: GM USA serving the U.S. follows: domestic market, and two foreign subsidiaries, respectively, in Argentina and Italy. Each division GBP to USD = 1.60 generates cash flows in local currencies, as summarized in the table below. Assume all cash flows JPY to USD = 0.008 take place at the end of each year. Based on the exchange rate quotations provided, determine how much JPY is needed to buy GBP 5 Next three years Thereafter million. (t = 1, 2, 3 (t = 4, 5, ..., 00) GM Argentina (in million peso "ARP") ARP 500 min 0 *For full credits, you must show the steps/calculation toward your results. GM Italy (in million euro "EUR") EUR 50 mir o GM USA (in million dollar "USD" USD 100 min The exchange rates over next three years will be ARP = $0.08 and EUR = $1.20. Answer questions (a) and (b) below. a) [10 marks] The table above shows that each division generates an equal amount of cash flow per year for next three years. Determine the combined cash flow per year, in U.S. dollar, Question 4 [10 marks] GM will generate for next three years. Barclays has provided the following quotations for euro (EUR) and Hong Kong dollar (HKD), *For full credits, you must show the steps/calculation toward your results. respectively: EUR/USD bid = 1.12; EUR/USD ask = 1.28 . HKD/USD bid = 0.12; HKD/USD ask = 0.15 Answer questions (a) and (b) below a) Find the percentage bid-ask spread for EUR/USD and HKD/USD, respectively. b) [10 marks] Find the combined firm value in U.S. dollar (i.e., compute the present value of the firm's combined cash flows). Assume that the discount rate for all cash flows equals 10%. *For full credits, you must show the steps/calculation toward your results. *You can use the annuity formula below, or financial calculator, to compute the present value. Annuity formula: + + (1trz + ..+ (1+7 )7 = 1 -(+) ] *For full credits, you must show the steps/calculation toward your results. b) Based on the results found in part (a), determine for which of the two foreign currencies there are more buyers and sellers in the markets (provide your rationale in a sentence)