International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
expand_more
expand_more
format_list_bulleted
Question
error_outline
This textbook solution is under construction.
Students have asked these similar questions
A U.S.-based MNC has a subsidiary in Malaysia that generates substantial net cash inflows denominated in Ringgit Malaysia. Given this information, the MNC would ____ from a ____ of the Ringgit Malaysia.
A.
benefit; appreciation
B.
not benefit; depreciation
C.
benefit; depreciation
D.
not benefit; appreciation
Consider Hurd Co., a U.S.-based MNC that wishes to analyze its economic exposure with respect to the British pound. The firm is comprised of three
major business units: Unit A, Unit B, and Unit C. Each unit conducts international transactions in pounds.
Hurd gathers data on percentage changes in the cash flow of each unit, changes in the total cash flow of the company, as well as the change in the
value of the pound over the last 12 quarters. A small subset of the data set is shown in the following table, with many of the observations omitted for
brevity.
% Change in Unit
% Change in Unit
% Change in Unit
% Change in Total
% Change in
Quarter
A's Cash Flows
B's Cash Flows
C's Cash Flows
Cash Flows
Value of Pound
1
-2
1
3
2
1
2
-1
0
2
1
4
12
3
0
1
4
-3
Hurd uses the data to estimate the following regression equation.
PCF₁ = ao + a₁ (PCP₁) +µt
Where PCF is the percentage change in the cash flows of the company at time period t (column 5 in the table), and PCP, is the percentage change
in…
Suppose that Salem Co, a U.S.-based MNC that both purchases supplies from Canada and sells exports in Canada, is seeking to measure the economic
exposure of its cash flows. Salem wishes to analyze how its cash flows might change under different exchange rates for the Canadian dollar (the only
foreign currency in which it deals).
Salem estimates it's cash flows from both the U.S., in dollars, and Canada, in Canadian dollars. These figures are summarized in the following table.
U.S. Canada
Sales
-Cost of materials
$315
C$5
$45
C$150
-Operating expenses
$55
-Interest expenses
$5
C$10
Cash flows
$210
-$C155
Salem believes that the value of the Canadian dollar will be $0.70, $0.75, or $0.80, and seeks to analyze its cash flows under each of these scenarios.
The following table shows Salem's cash flows under each of these exchange rates.
For each exchange rate scenario, fill in rows (2), (3), (5), (6), (9), and (10). Finally, fill in the last row for net cash flows in U.S. dollars for each…
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- In an attempt to manage economic exposure, the following are examples of diversifying operating cash flows, EXCEPT: A) Diversification of sales across different countries B) Locating manufacturing facilities is various countries C) Issuing bonds in foreign countries D) Buying raw materials from more than one country Parrow_forwardABC beauty Group, incorporated in China, has its head office in China. It operates several beauty retailing shops in China, Malaysia and Indonesia, and the operations are financed by local letters of credit or bank loans from the respective location. ABC sources its beauty products from France and United States and settles payable in euros and US Dollar. All the net cash inflows after deducted the local operating expenses are remitted to China. Required: Discuss which currency should be used as ABC’s functional currencyarrow_forwardDiscuss two general functions involved in international cash management and explain how the MNC’s optimization of cash flow can distort the profits of a subsidiary that is based in North America.arrow_forward
- Firms use a variety of methods to conduct business internationally. Consider the case of an MNC conducting international business via the use of international trade. When this method of conducting international business is used, cash inflows come from ? while cash outflows flow to ? .arrow_forwardA UK-based firm has identified three variables that impacts its cash flow, hence risk associated with its cashflow. The identified variables are interest rates (INT), the euro/sterling exchange rate (EXCH), and the price of gas (GAS). The relationship between the variables can be expressed as follows: Change in cash flow = ₔ+ ß1 INT + ß2 EXCH + ß3 GAS + ҙ (a) Explain the relationship as expressed in the multiple regression analysis. (b) Identify the dependent variable and independent variables and type of risks associated to each variable and how to manage these risks. (c) How do you describe the relationship between the independent variables and the dependent variable. (d) Identify and briefly explain the three commonly used approaches to quantifying financial risks.arrow_forwardTransaction Exposure 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?arrow_forward
- A Canadian bank has operations in USA. 65% of their net cash flow is from Canadian operations and 35% is from the US. What are the 3 elements to be used to determine the value of this bank? With the Canadian dollar appreciating relative to the US dollar how will the valuation of this bank be affected?arrow_forwardConsidering the following quotes from three banks: London Bank: €1.0837/£ Hong Kong Bank: U$1.1944/£ Tokyo Bank: €0.9582/U$ Ignoring transaction costs, is there an arbitrage opportunity based on these quotes? Justify your answer through calculations. If yes, what steps would you take to make an arbitrage profit and how much profit in US dollars would you make if you are authorized to use 10 million US dollars for this purpose?arrow_forwardSuppose you work at the FOREX desk of a multinational bank. No particular country is the home country for you as your responsibility is to conduct foreign exchange trade in whichever way is profitable for the bank. Using this as your guideline, consider the following data: S0 = ¥92/US$ S180 = ¥92/US$ IUS = 2% per annum IJapan = 0.09% per annum With a starting amount of US$10 million or its Yen equivalent, can you make a UIA profit? What if a CIA was conducted at F180 of ¥90/US$? What are your observations?arrow_forward
- Suppose that Cleveland Co. engages in international business, with transactions denominated in four different foreign currencies: the euro, the Canadian dollar, the Australian dollar, and the Mexican peso. The company wishes to measure its cash flows in a single currency, the dollar, over the next quarter. The following table shows the total cash inflows and outflows for each currency, along with the expected exchange rate for that currency. For each row in the table, enter the net inflow or outflow in that currency for the MNC. Then, enter the dollar value of that inflow or outflow in the last column of the table. Total Inflow (Millions) 30 euros Note: Remember to enter a negative sign if a value is negative. Currency Euro Net Inflow or Outflow (Millions) Total Outflow Expected Exchange (Millions) Rate Net Inflow or Outflow, In Dollars (Millions) 15 euros euros $1.20 Canadian Dollar $C30 $C20 C$ $0.90 +A Australian Dollar $A10 $A20 A$ $0.50 Mexican peso 20 pesos 30 pesos peso $0.10 +A…arrow_forwardThe financial system can be best described as:A. A computer system that is used to process trades/transactions byparticipants in financial markets and/or institutions.B. Financial markets plus institutions.C. Participants and players in financial markets and the direct route forchanneling funds in the economy from the surplus agents to deficitagents.2. Ion National Bank issues a 6-month, USD 1 million CD at 4.0% andfunds a loan in Argentine pesos (ARS) at 6.5%. The spot rate for theARS was ARS 2.27 per USD at the time of the transaction. In 6 months,the ARS will have depreciated to ARS 2.30 per USD. What is therealized nominal annual spread on the loan?A. -1.07%B. -0.19%C. 0.11%3. Based on semiannual compounding, what would the price be of a 13-year, 10% coupon, and $1,000 par value bond that is currently yielding9.25%? A. 1,036.03 B. 1,055.41 C. 1,056.05 4. What is the price of a T-bill that has a bank discount yield of 5%, a$100,000 face value and a 180 day holding…arrow_forwardConsider Firm A and Firm B that both produce the same product. Firm A would more likely have more stable cash flows if its percentage of foreign sales were ____ and the number of foreign countries it sold products to was ____. A. higher; small B. lower; small C. higher; large D. higher; largearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
How to Invest in Foreign Stocks (INVESTING FOR BEGINNERS); Author: The Money Tea;https://www.youtube.com/watch?v=Qzj4VozcO9s;License: Standard Youtube License