The current US$/A$ (Australian dollar) rate is 0.95. While the ten year Australian Treasury Bond is currently 6.00%, the ten year U.S. Treasury Note is only 4.00%. What is the expected US$/A$ spot rate ten years from now?

Question 10 options:

Question 11 (2 points)

The table above shows the spot and forward market for Swiss Francs (CHF) in terms of US dollars (USD)$. Swiss francs are abbreviated CHF so this table shows the ratio of USD/CHF.

According to these data (which does not reflect actual rates at this time), 90-day CHF LIBOR is___________ relative to USD LIBOR.

Question 11 options:

	Higher.
	The same.
	Lower

Question 12 (1 point)

With reference to the previous question, as the director of cash management for a US-based company it is your duty to take care of a payable due a Swiss watch making company due in 90 days in the amount of CHF 1,000,000. You decide to hedge this payable in the 90- day forward market. What actions would you take? Specifically, what dealings would you have with an exchange dealer, and what instructions would you give your account representative at the bank?

Question 12 options:

	Buy CHF 1,000,000 from a dealer for USD 981,200 for delivery in 90 days, use your bank account to make delivery of the USD 981,200, instruct the bank to deliver USD 981,200 to the dealer and receive from the dealer CHF 1,000,000 and then have the bank turn the CHD 1,000,000 around and send that to the watchmaker.
	Buy CHF 1,000,000 from a dealer for USD 976,300 for delivery in 90 days, use your bank account to make delivery of the USD976,300 in 90 days, instruct the bank to deliver USD 976,300 to the dealer and receive from the dealer CHF 1,000,000 and then have the bank send the CHF 1,000,000 to the watchmaker.
	Buy CHF 1,000,000 from a dealer for USD 981,200, use you bank account to make delivery of the USD 981,200, deposit the CHF 1,000,000 in a bank for the 90 days, instruct the bank to withdraw the CHF 1,000,000 from your account and send them to the watch maker in 90 days.
	Buy CHF 1,000,000 from a dealer for USD976,300, use you bank account to make delivery of the USD976,300, deposit the CHF 1,000,000 in a bank for 90 days, instruct the bank to withdraw the CHF 1,000,000 from your account and send them to the watch maker in 90 days.
	Pick up the phone and buy CHF 1,000,000 for USD 981,200 from your bank which is also a dealer for delivery in 90 days. At the same time arrange for the bank to redirect the CHF 1,000,000 to the Swiss watchmaker in 90 days in payment of the amount due.

Question 13 (2 points)

The current $/ rate is 1.36. Because Europe is highly unionized and unions enjoy a higher legal status than in the U.S. European inflation is expected to be 4% over the next five years as Europe adjusts to the higher cost of energy. In the U.S. inflation is expected to be around 2%. What is expected $/ spot rate expected to be five years from now?

Question 13 options:

The firm for which you serve as Chief Financial Officer has just purchased a French company that makes a specialized kind of Lazar beam used in neurosurgery. The company's sales are mostly in France with a few sales in the U.S. The only competitor in this industry is a U.S. firm that manufactures in the U.S. As the chief financial officer, you are concerned about the affect of fluctuations in the exchange rate between the US$ and the Euro. You would like to recommend some strategies to minimize the impact of potential fluctuations on the firm's income.

Above is a scenario analysis of the impact of $/ fluctuations on earnings (before taxes). The first column shows the amount of money in either currency for the base case (the middle case) where US$/ = 1.35. All the other data are in US$.

The image displayed below is a partial pro-forma income statement under three different exchange rate scenarios.

Question 14 (1 point)

This is the question about the Fench company and managment of exchange rate risk.

The table above is the result of an analysis of the base case. All data have been translated into U.S. Dollars.

The letter "A" should be replaced by,

Question 14 options:

Question 15 (1 point)

With reference to the previous question, the amount that should replace the letter 'B' in the table is_____ (indicate 'USD' for U.S. dollars or 'EUR' for Euros).

Question 15 options:

Question 16 (1 point)

With reference to the previous question, the amount that should replace the letter 'G' in the table is ________(indicate 'USD' for U.S. dollars or 'EUR' for Euros).,

Question 16 options:

Question 17 (1 point)

With reference to the previous question, the amount that should replace the letter 'H' in the table is____ (indicate 'USD' for U.S. dollars or 'EUR' for Euros).,

Question 17 options:

Question 18 (15 points)

With reference to the previous question, some of the practical things that This company should consider to reduce its vulnerability to currency exchange fluctuations is (CHECK ALL THAT APPLY),

Question 18 options:

	Pay down USD debt and increase Euro debt.
	Pay down EUR debt and increase USD debt.
	Reduce US CGS by moving more sourcing activity to France.
	Reduce French CGS by moving more activity to the US.
	Invoice more sales in Euros.
	Reduce Euro sales.
	Increase USD sales.
	Move fixed costs from France to the US.
	Move fixed costs from the US to France.
	Move gross margin from France to the US.
	Move gross margin from the US to France.
	Move more EBIT from the US to France.
	Move more EBIT from France to the US.
	Reduce USD variable costs by increasing EUR variable costs
	Reduce EUR variable costs by increasing USD variable costs.

Spot 30 days 90 days 180 days 0.9812 0.9788 0.9763 0.9714 US$ E Consol Sales U.S Cost of Goods Sold Gross Margin Fixed Costs EBIT Interest Expenses EBT Total Inflow Total Outflows