Assignment 1

Assessing Translation Exposure Assume the euro’s spot rate is presently equal to $1.00. All of the following firms are based in New York and are the same size. While these firms concentrate on business in the United States, their entire foreign operations for this quarter are provided here. Company A expects its exports to cause cash inflows of 9 million euros and imports to cause cash outflows equal to 3 million euros. Company B has a subsidiary in Portugal that expects revenue of 5 million euros and has expenses of 1 million euros. Company C expects exports to cause cash inflows of 9 million euros and imports to cause cash outflows of 3 million euros, and will repay the balance of an existing loan equal to 2 million euros. Company D expects zero exports and imports to cause cash outflows of 11 million euros. Company E will repay the balance of an existing loan equal to 9 million euros. Which of the five companies described here has the highest degree of translation exposure?

Case 1 ABC beauty Group, incorporated in China, has its head office in China. It operates several beauty retailing shops in China, Malaysia and Indonesia, and the operations are financed by local letters of credit or bank loans from the respective location. ABC sources its beauty products from France and United States and settles payable in euros and US Dollar. All the net cash inflows after deducted the local operating expenses are remitted to China. Required:Which currency should be used as ABC’s functional currency based on IAS 21?

International Finance (chapter 21) Question: Classify each of the following as debits or credits in the U.S. balance of payments. Americans buy chocolate from the Swiss. U.S. gives foreign aid to Bosnia. British   investors purchase U.S. government bonds American tourists travel to Australia Volkswagen earns profits in the United   States from its new cars Toyota   builds a new plant in Ohio Capital   Records sells rock and roll music in Sweden

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Shrewsbury Herbal Products, located in central England close to the Welsh border, is an oldline producer of herbal teas, seasonings, and medicines. Its products are marketed all over the United Kingdom and in many parts of continental Europe as well. Shrewsbury Herbal generally invoices in British pound sterling when it sells to foreign customers in order to guard against adverse exchange rate changes. Nevertheless, it has just received an order from a large wholesaler in central France for £320,000 of its products, conditional upon delivery being made in three months’ time, and the client insists that the order should be invoiced in euros based on the current spot rate (they don’t want to take the FX risk at all). Shrewsbury’s controller, Elton Peters, is concerned with whether the pound will appreciate versus the euro over the next three months, thus eliminating all or most of the profit when the euro receivable is paid (Profit percentage rate for this product is roughly 20%). He…

Suppose you work at the FOREX desk of a multinational bank. No particular country is the home country for you as your responsibility is to conduct foreign exchange trade in whichever way is profitable for the bank. Using this as your guideline, consider the following data: S0 = ¥92/US$ S180 = ¥92/US$ IUS = 2% per annum IJapan = 0.09% per annum With a starting amount of US$10 million or its Yen equivalent, can you make a UIA profit? What if a CIA was conducted at F180 of ¥90/US$? What are your observations?

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From the case study, only respond to question #3

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Problem 1Comparison of prices or costs across different country and currency environments requires thetranslation of the local currency into a single common currency. This is most meaningful when thecomparison is for the identical or near-identical product or service across countries. Deutsche Bankhas recently started publishing a comparison of cheap dates - and evening on the town for two toeat at McDonald's, see a movie, and drink a beer. Once all costs are converted to a commoncurrency, the U.S. dollar in this case, the cost of the date can be compared across cities relative tothe base case of a cheap date in USD in New York City.After completing the table available in images. answer the following questions:(ALL Tables are also available in the images). a. Which city in the table is truly the cheapest date?b. Which city in the table is the most expensive-cheap date?c. If the exchange rate in Moscow on the Russian ruble (RUB) was 0.04200, instead of 0.0283, whatwould be the USD…

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Case-in-brief - Chapter 6 - Argentina Currency Devaluation Your company is currently operating in Argentina. Management is concerned to what extent the Argentine peso will be devalued. It wants to examine two scenarios: one where the currency drops 15% and one where it drops 25%. Currently, the exchange rate is 92 pesos (ARS$ 92) to 1 US dollar (US$1). Contribution after marketing in Argentina was 21% of sales (see Exhibit). Your goal is to maintain this percentage. Exhibit: Argentina Contribution after Marketing (ARS$ Argentine Pesos) Unit Sales Manufacturer Sales Costs Gross Margin Total Marketing Units ARS % 46 325.9 100% 183.3 56% 142.6 44% 73.3 22% Contribution after Marketing 69.3 21% QUESTION 2 How much more sales revenue would be needed in Argentina to maintain your current contribution after marketing? Additional Manufacturer Sales in Argentine Pesos after 15% drop: 0.000 Additional Manufacturer Sales in Argentine Pesos after 25% drop: 0.000

Balance of payments accounting. For the following international transactions, identify the balance of payments accounts and whether the transaction would generate an inflow or an outflow of foreign exchange for the two countries involved. ■ The Colombian drug cartel delivers 100 kg of heroin to its distributor in Miami, who pays $25 million in cash.