You have been hired as a consultant to the central bank for…
You have been hired as a consultant to the central bank for a country that has for many years suffered from repeated currency crises and depends heavily on the U.S. financial and product markets. Which of the following policies would have the greatest effectiveness for reducing currency volatility of the client country with the United States?
Read Details(5 points) Real Exchange R Over the course of the last year…
(5 points) Real Exchange R Over the course of the last year, the Mexican peso, P, has changed in value from S(P/$) = 9.2 to S(P/$) = 9.8. Over the same period, the Mexican price index rose from 156.1 to 164.5 and the U.S. price index rose from 131.2 to 135.0 (price index 1990 = 1.00). a. (2 points) Over this time period did the US$ appreciate or depreciate against the peso in nominal terms? Calculate the percentage change in the nominal value of the dollar. b. (3 points) Determine the percentage change in real exchange rate R(P/$) over this period. Are Mexican goods more or less expensive in $ terms than one year ago? What would have happened to the competitiveness of Mexican goods relative to U.S. goods?
Read Details(10 points) International Capital Budgeting You work for an…
(10 points) International Capital Budgeting You work for an Israeli company that is considering an investment in China’s Sichuan province. The investment yields expected after-tax Chinese new yuan cash flows (in millions) as follows: Expected inflation is 6% in shekels and 3% in yuan. Required returns for this risk-class are iILS = 15% in Israeli shekels and iCNY = 11.7% in yuan. The spot exchange rate is S0 ILS∕CNY = ILS 0.5 ∕ CNY. Assume the international parity conditions hold. a. (4 points) Compute the expected future exchange rate for Year 1, 2, and 3. b. (4 points) Calculate NPV from the parent’s perspective by converting yuan into shekels at expected future spot rates and then discounting at the appropriate rate in shekels. 0 1 2 3 FCF_China Exchange Rate (ILS/CNY) FCF_Israel Discount rate NPV (ILS) c. (1 point) What is the IRR of the project? d. (1 point) Should the management accept this project? Why?
Read Details(12 points) Exchange Rates In the Financial Times you…
(12 points) Exchange Rates In the Financial Times you see the following exchange rate quotes. spot 360 day forward CAD/ USD 1.7450 1.7475 USD/£ 1.6835 1.6865 a. (2 points) Which quote is in “American terms” and which quote is in “European terms”? b. (2 points) Determine the cross rate (as £/CAD) consistent with no triangular arbitrage. c. (2 points) Suppose you could trade 0.3568 £ for 1CAD. Can you make a profit via triangular arbitrage? Why? d. (4 points) Describe how you would exploit it. You should identify the direction of transactions and determine the profit from running $1 million through this cycle. e. (2 points) Determine the forward premium for the £ in terms of the US$. Explain whether the foreign currency is expected to appreciate or depreciate against the U.S. dollar.
Read Details