CH 1 Quiz 1. Suppose your firm invests $100‚000 in a project in Italy. At the time the exchange rate is $1.23= 1.00 Euros. One year later the exchange rate is the same‚ but the Italian government has expropriated your firm’s assets paying only 80‚000 Euros in compensation. This is an example of a. Political risk 2. Country A can produce 10 yards of textiles or 6 pounds of food per unit of input. Compute the opportunity cost of adding one additional unit of food instead of textiles. a. 1 yard
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Table of Contents Company Profile 2 Firm’s Economic Environment 2 Exchange rates 2 Inflation 2 Interest Rates 2 GDP Growth Rate (YoY) 3 Population 3 The influence of economic environment on firm’s historical performance 3 The influence of economic environment on firm’s future performance 3 Industry Analysis 3 Rivalry between existing firms 3 Threat of new entrants 4 Threat of substitute products 4 Bargaining power of customers 4 Bargaining power of suppliers 4 SWOT Analysis 5 Key successful factors
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in Germany). Introduce the two businesses. Inflation Define inflation You need to describe the current inflation rate in the UK. Include a graph. Explain what this means to Sub Xpress Think costs to the business Think prices to the customers Think affordability to customers In a second paragraph underneath You need to describe the current inflation rate in Germany. Include a graph. Explain what this means to BMW Think costs to the business Think prices to the customers Think
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floating exchange rates‚ any time that a transaction—whether that transaction is in goods‚ services‚ people‚ capital‚ or technology—has crossed borders‚ it has been subject to the influence of changes in exchange rates. The basic problem posed by exchange rates on the cross-border firm is that money across borders has no fixed value. Consequently‚ neither does a transaction undertaken across borders. In this Note‚ our purpose is to understand‚ categorize‚ and define the specific types of exchange rate
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original sale to Novo once the exchange-rate changes are acknowledged? How has the exchange-rate risk‚ which affected the value of the order‚ been managed? In the original order‚ Nova was billed BRL 104‚338.30 for their purchase. After the exchange of currency from BRL to U.S. dollars‚ Baker was estimated to receive $48‚371.24 (104‚338.30 * .4636). This means that Baker brought in $55‚967.06 less from their deal with Nova than was expected. Since the exchange-rate risk was not managed‚ Baker brought
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flows denominated in foreign currencies to unexpected exchange rate changes b) the extent to which the value of the firm would be affected by unanticipated changes in exchange rate c) the potential that the firm’s consolidated financial statement can be affected by changes in exchange rates d) ex post and ex ante currency exposures Answer: a) 2. The most direct and popular way of hedging transaction exposure is by: a) exchange-traded futures options b) currency forward contracts
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any given currency in the foreign-exchange market? Supply and demand for currencies establishes prices in the foreign-exchange market. Demand for a country’s currency increases when foreigners buy that country’s products. Supply of a country’s currency increases when the residents of a country buy foreign products. 2. What determines supply of any given currency in the foreign-exchange market? The means by which equilibrium is reached in a fixed exchange system differs according to the
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within the country. This could potentially halt their production. It may create opportunity to expand or increase local competitions. Corona expanded internationally‚ especially USA‚ with no local production this create the risk of foreign currency exchange rate fluctuation when economic changes. The society may change their preference and turned into health conscious consumer‚ this would significantly impact the sales of all alcohol company. Technology will help Corona in their marketing campaign‚ this
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foreign exchange rates are predictable. eliminate risk doing business abroad By parity there means there is some sort of equilibrium or equality. 4 Variables - Outline the Parity Condition Exchange Rates Forward Currencies Inflation rates Interest Rates *Note: If parity conditions are to hold (equality) we must assume that exchange rates are fully floating and there are no capital controls 5 Parity Conditions: Purchasing Power Parity Relationship btw inflation and exchange rates
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especially a good idea when it comes to firms within nations with small/ emerging capital markets. Reduce borrowers’ cost – An expanded money supply reduces the cost of borrowing. As supply increases‚ interest rate falls. Therefore excess supply creates a borrowers market‚ forcing down interest rates and the cost of borrowing. Projects that aren’t expected to really return on investment quickly or correctly might be an option at lower financing cost. Reduces lenders’ risk – The international capital market
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