International Business Exam
Michelangelo Felix Management 491-002 Final Exam FINAL EXAMINATION INTERNATIONAL BUSINESS 491-002 Due Monday May 13, 2013 This exam has been handed out in class and posted on the class website on April 19th, 2013 and is due back as an e-mail attachment in Microsoft Word or pdf format or by fax (914-923-1416) by 11:55PM on Monday, May 13, 2013. Late submissions will be downgraded! This is an open book test and you may discuss an answer with other students. But you must submit your own answer in your own words! Further any information taken from the text or other sources must be paraphrased. That is, it also must be put into your own words. No quotes! Warning! Common or group answers are not accepted and will receive zero credit. Read The Questions Carefully and Be Sure to Address All the Points Raised Answer All 8 questions (100 points) Short Answer 1-7 [10 points each and each about 1/2 – 3⁄4 page double-spaced]: 1.If the spot rate for Japanese Yen is 85 Yen equals 1 US $, and the annual Yen interest rate on fixed rate one-year deposits of Yen is 0.25% and for US$ is 1.5%, what is the nine-month forward rate for one dollar in terms of Yen? Assuming the same interest rates, what is the 18-month forward rate for one Yen in dollars? Is this an indirect or a direct rate? If the forward rate is an accurate predictor of exchange rates, in this case will the Yen get stronger or weaker against the dollar? What does this indicate about the market’s inflation expectations in Japan compared to the US? S = $1 USD = 85 JPY
Rd = annual Yen interest rate = 0.25%
Rf = annual USD interest rate = 1.5%
9 months = 270/360
F = Forward Rate
F = S * (1 + Rd * 270/360) / (1 + Rf * 270/360)
F = S * (1 + 1.5% * 270/360) / (1 + 0.25% * 270/360)
F = 86.0598 YEN
F
Rd = annual Yen interest rate = 0.25%
Rf = annual USD interest rate = 1.5%
9 months = 270/360
F = Forward Rate
F = S * (1 + Rd * 270/360) / (1 + Rf * 270/360)
F = S * (1 + 1.5% * 270/360) / (1 + 0.25% * 270/360)
F = 86.0598 YEN
F