1. (7 points) Suppose the value of the Norden franc moves from NFr 1,000 = $1 at the start of
the year to NFr 1,800 = $1 at the end of the year. At the same time, the Norden price index changes from 100 on January 1 to 134 on December 31. U.S. inflation during the year was 4.5%. What happened to the real value of the Norden franc during the year? If the one-year interest rate on the franc is 44%, what was the real dollar cost of borrowing the franc during
2. (9 points) Norden pegs its currency, the Norden franc, to the U.S. dollar at an exchange rate
(SNFr,$) that rises by a pre-announced amount each month. Such an arrangement is called a crawling peg. Norden’s inflation rate exceeds that of the United States by more than the rate at which the Norden franc is devalued. If Norden maintains its commitment to the crawling
peg, what actions must Norden’s central bank take? What would speculators do?
3. (9 points)
a) Recent surveys of foreign exchange risk management practices by corporations indicate
that many firms simply do not hedge. How would you explain this result?
b) It is generally not possible to completely eliminate both translation exposure and
transaction exposure. In some cases, the elimination of one exposure will also eliminate the other. But in other cases, the elimination of one exposure actually creates the other. Discuss which exposure might be viewed as the most important to effectively manage, if a conflict between controlling both arises.
4. (9 points) Overheard in one of the boardrooms across Canada: “The international Fisher
effect makes no sense! It predicts that a rise in the domestic interest rate will cause the domestic currency to depreciate. But when we discussed factors affecting exchange rates, we learned that a rise in the interest rate leads to a currency appreciation.” Comment.
5. (12 points) Many suggest that a practical method of measuring foreign exchange exposure is
to gather historical data for a company and then run the following regression:
DCFt = a + b × DSHC,FC,t + et
where DCFt is the change in the company’s operating cash flows for period t stated in home currency, and DSHC,FC,t is the change in the home currency value of the foreign currency during period t (i.e., amount of home currency per one unit of foreign currency).
a) Do you expect to be positive or negative for a domestic exporter? Explain. What
happens to if our firm builds a plant in the foreign market?
b) Do you expect to be positive or negative for a domestic firm that faces competition in
its domestic market from foreign suppliers? Explain.
c) A particular firm has estimated a beta (b) coefficient of 2,000,000. Assuming that this is
an accurate measure of exposure to this exchange rate, identify three methods that the firm could use to manage its foreign exchange risk. Be as specific as possible.
6. (10 points)
a) In using regression analysis to assess the sensitivity of cash flows to exchange rate
movements, what is the purpose of breaking the data into subperiods?
b) Assume the regression coefficient based on assessing economic exposure was much
higher in the second subperiod than in the first subperiod. What does this tell you about
the firm’s degree of economic exposure over time? Why might such results occur?
7. (9 points) A Canadian professional hockey team plans to play an exhibition game in
Germany next year. All expenses will be paid by the German government and the team will receive a check for 2 million euros when the game is played. In addition, the NHL must approve the deal, and approval (or disapproval) will not occur for three months. How can the team hedge its position? What is there to lose by waiting three months to see if the
exhibition game is approved before hedging?
8. (9 points) A Turkish firm produces furniture and has no international business. Its major
competitors import most of their furniture from Europe and then sell it out of retail stores in
Turkey. How will our company be affected if the Turkish lira appreciates against the euro?
9. (7 points) Bavaro Inc. expects that the British pound will depreciate from $1.70 to $1.68 in
one year. It has no money to invest, but it could borrow money to invest. A bank allows it to borrow either 1 million dollars or 1 million pounds for one year. It can borrow pounds at 6 percent or dollars at 5 percent for 1 year. It can invest in a risk-free pound deposit at 5 percent for 1 year or a risk-free dollar deposit at 4 percent for 1 year. Can Bavaro capitalize
on the expected depreciation of the pound?
10. (10 points)
a) If a currency that a company is long in threatens to weaken, many companies will sell
that currency forward. Comment on this policy.
b) Multinational firms can always reduce the foreign exchange risk faced by their foreign
affiliates by borrowing in the local currency. True or false? Why?
11. (9 points) Your bank is working with a Turkish client who wishes to hedge her Canadian
dollar payable. Suppose it is possible to invest in lira but not borrow in that currency. However, you can both borrow and lend in Canadian dollars. Also, both put and call options on lira are available. Assuming there is no forward market in lira, can you create a homemade forward contract that would allow your client to hedge her Canadian dollar
Why Choose Us
At Myhomeworkwriters.com, we always aim at 100% customer satisfaction. As such, we never compromise o the quality of our homework services. Our homework helpers ensure that they craft each paper carefully to match the requirements of the instruction form.
Professional Academic Writers
With Myhomeworkwriters.com, every student is guaranteed high-quality, professionally written papers. We ensure that we hire individuals with high academic qualifications who can maintain our quality policy. These writers undergo further training to sharpen their writing skills, making them more competent in writing academic papers.
Our company maintains a fair pricing system for all academic writing services to ensure affordability. Our pricing system generates quotations based on the properties of individual papers.
My Homework Writers guarantees all students of swift delivery of papers. We understand that time is an essential factor in the academic world. Therefore, we ensure that we deliver the paper on or before the agreed date to give students ample time for reviewing.
Myhomeworkwriters.com maintains a zero-plagiarism policy in all papers. As such, My Homework Writers professional academic writers ensure that they use the students’ instructions to deliver plagiarism-free papers. We are very keen on avoiding any chance of similarities with previous papers.
Customer Support 24/7
Our customer support works around the clock to provide students with assistance or guidance at any time of the day. Students can always communicate with us through our live chat system or our email and receive instant responses. Feel free to contact us via the Chat window or support email: email@example.com.
Try it now!
How it works?
Follow these simple steps to get your paper done
Place your order
Fill in the order form and provide all details of your assignment.
Proceed with the payment
Choose the payment system that suits you most.
Receive the final file
Once your paper is ready, we will email it to you.
Our Homework Writing Services
My Homework Writers holds a reputation for being a platform that provides high-quality homework writing services. All you need to do is provide us with all the necessary requirements of the paper and wait for quality results.
At My Homework Writers, we have highly qualified academic gurus who will offer great assistance towards completing your essays. Our homework writing service providers are well-versed with all the aspects of developing high-quality and relevant essays.
Admission and Business Papers
With Myhomeworkwriters.com, we will help you secure a position at your desired institution. Our essay writing services include the crafting of admissions papers. We will still help you climb your career ladder by helping you write the official papers that will help you secure a job. We will guide you on how to write an outstanding portfolio or resume.
Editing and Proofreading
Myhomeworkwriters.com has a professional editorial team that will help you organize your paper, paraphrase it, and eliminate any possible mistakes. Also, we will help you check on plagiarism to ensure that your final paper posses quality and originality.
My Homework Writers harbors professional academic writers from diverse academic disciplines. As such, we can develop homework writing services in all academic areas. The simplicity or complexity of the paper does not affect the quality of homework writing services.