# Chapter 17 Multinational Financial Management

 Дата канвертавання 27.04.2016 Памер 24.61 Kb.

## Convert \$1000 into Euros. How many?

1 If British pounds sell for \$1.50 (U.S.) per pound, what should dollars sell for in pounds per dollar?

2. Suppose that 1 Danish krone could be purchased in the foreign exchange market for 14 U.S. cents today. If the krone appreciated 10 percent tomorrow against the dollar, how many krones would a dollar buy tomorrow?

3. Suppose the exchange rate between the U.S. dollar and the Swedish krona was 10 krona = \$1.00, and the exchange rate between the dollar and the British pound was £1 = \$1.50. What was the exchange rate between Swedish kronas and pounds?

• ## Purchasing power parity implies that the level of exchange rates adjusts so that identical goods cost the same amount in different countries.

• Absolute Form PPP – Without international barriers consumers shift their demand to wherever prices are lower. The prices of the basket of products in two different should be equal when measured in a common currency.

• Relative Form of PPP – Because of market frictions (tariffs, transportation costs and quotas) prices of the same basket of products in different countries will not necessarily be the same when measured in a common currency.

Spot Yen \$.012/Yen

Lebron Basketball shoes cost \$110 in USA (assume the shoes represents a basket of US goods). They should cost Yen in Japan

Suppose they cost 12,000 Yen in Japan. If Absolute PPP holds what should happen?

## BRITISH POUND 1.6342 .6119

4. A television set costs \$500 in the United States. The same set costs 725 euros. If purchasing power parity holds, what is the spot exchange rate between the euro and the dollar?

• ## In 1999, the implementation of the “euro” occurred. The national currencies of the 11 participating countries were phased out in favor of the “euro.” The newly formed European Central Bank controls the monetary policy of the EMU. (now 16 countries use the Euro and 27 countries in the EMU)

The euro (January 4, 1999) is the official currency of the European Union, and is currently in use in 17 of the 27 Member States (11 countries originally used it). The states, known collectively as the Eurozone are Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain.

## The primary determinant of the spot/forward rate relationship is relative interest rates

5. Chamberlain Canadian Imports has agreed to purchase 15,000 cases of Canadian beer for 4 million Canadian dollars at today's spot rate. The firm's financial manager, James Churchill, has noted the following current spot and forward rates:

Spot 1.0526 .9500

30-day forward 1.0504 .9520

90-day forward 1.0471 .9550

180-day forward 1.0444 .9575
On the same day, Churchill agrees to purchase 15,000 more cases of beer in 3 months at the same price of 4 million Canadian dollars.

a. What is the price of the beer, in U.S. dollars, if it is purchased at today's spot rate?

b. What is the cost, in U.S. dollars, of the second 15,000 cases if payment is made in 90 days and the spot rate at that time equals today's 90-day forward rate?

c. If the exchange rate for the Canadian dollar is.90 to \$1 in 90 days, how much will Churchill have to pay for the beer (in U.S. dollars)?

База данных защищена авторским правом ©shkola.of.by 2016
звярнуцца да адміністрацыі