3209AFE INTERNATIONAL FINANCE
Tutorial 4 Questions
Assessing Transaction Exposure. (Page 331)
Your employer, a large MNC, has asked you to assess its transaction exposure. Its projected cash flows are as follows for the next year:
| | | |Current Exchange Rate in U.S. | |Currency |Total Inflow |Total Outflow |Dollars | |Danish krone (DK) |DK50,000,000 |DK40,000,000 |$0.15 | |British pound (£) | £2,000,000 | £1,000,000 |$1.50 |
Assume that the movements in the Danish krone and the pound are highly correlated. Provide your assessment as to your firm’s degree of transaction exposure (as to whether the exposure is high or low). Substantiate your answer.
Transaction Exposure. (Page 331)
Fischer Inc., exports products from Florida to Europe. It obtains supplies and borrows funds locally. How would appreciation of the euro likely affect its net cash flows? Why?
Money Market Hedge on Receivables. (Page 362)
Assume that Stevens Point Co. has net receivables of 100,000 Singapore dollars in 90 days. The spot rate of the S$ is $.50, and the Singapore interest rate is 2% over 90 days. Suggest how the U.S. firm could implement a money market hedge. Be precise.
Real Cost of Hedging Payables. (Page 363)
Assume that Suffolk Co. negotiated a forward contract to purchase 200,000 British pounds in 90 days. The 90-day forward rate was $1.40 per British pound. The pounds to be purchased were to be used to purchase British supplies. On the day the pounds were delivered in accordance with the forward contract, the spot rate of the British pound was $1.44. What was the real cost of hedging the payables for this U.S. firm?...
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