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FIN 534 WEEK 6 HOMEWORK SET

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FIN 534 WEEK 6 HOMEWORK SET;Question 2. Assessing Transaction Exposure;Your employer, a large MNC, has asked you to assess its transaction exposure. Its projected cash slows are as follows for the next year. Danish krone inflows equal DK50,000,000 while outflows equal DK40,000,000. British pound inflows equal L2,000,000 while out flows equal L1,000,000. The spot rate of the krone is $1.50. Assume that the movements in the Danish krone and the British pound are highly correlated. Provide your assessment as to your firm?s degree of transaction exposure (as to whether the exposure is high or low). Substantiate your answer.;Question 22. Measuring Economic Exposure;Using the cost and revenue information shown for DeKalb, Inc., on the next page, determine how the costs, revenue, and cash flow items would be affected by three possible exchange rate scenarios for the New Zealand dollar (NZ$): (1) NZ$ = $.50, (2) NZ$ = $.55, and (3) NZ$ = $.60. (Assume U.S. sales will be unaffected by the exchange rate.) Assume that NZ$ earnings will be remitted to the U.S. parent at the end of the period. Ignore possible tax effects.;Revenue and cost estimates: Dekalb, Inc.;(in millions of U.S. dollars and New Zealand Dollars;U.S. Business;New Zealand Business;Sales;$800;NZ$800;Cost of materials;500;10;operating;expenses;300;0;Interest expenses;100;0;Cash flows;-$100;NZ$700;Chapter 11;Question 11. Hedging on Payables Assume the following information;90-day U.S. interest rate;4%;90-day Malaysian interest rate;3%;90-day forward rate of Malaysian ringgit;$.400;Spot rate of Malaysian ringgit;$.404;Assume that the Santa Barbara Co. in the United States will need 300,000 rinngit it 90 days. It wishes to hedge this payables position. Would it be better-off using a forward hedge or a money market hedge? Substantiate your answer with estimated costs for each type of hedge.;Question 12. Hedging Decision on Receivables Assume the following information;180-day U.S interest rate;8%;180-day British interest rate;9%;180-day forward rate of British pound;$1.50;Spot rate of British pound;$1.48;Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days. Would it be better-off using a forward hedge or a money market hedge? Substantiate your answer with estimated revenue for each type of hedge.;Chapter 12;Question 1. Reducing Economic Exposure;Colorado, Inc., is a U.S., based MNC that obtains 10 percent of its supplies from European manufacturers. Sixty percent of its revenues are due to exports to Europe, where its product is invoiced in euros. Explain how Colorado can attempt to reduce its economic exposure to exchange rate fluctuations in the euro.;Question 2. Reducing Economic Exposure;UVA Co. is a U.S. based MNC that obtains 40 percent of its foreign supplies from Thailand. It also borrows Thailand?s currency (the baht) from Thai banks and converts the baht to dollar to support U.S. operations. It currently receives about 10 percent of its revenue from Thai customers. Its sales to Thai customers are denominated in baht. Explain how UVA Co. can reduce its economic exposure to exchange rate fluctuations.

 

Paper#31234 | Written in 18-Jul-2015

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