International Financial Management
14th Edition
ISBN: 9780357130698
Author: Madura
Publisher: Cengage
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Uncertainty Surrounding an MNC’s Cash Flows
Assume that Bangor Co. (a U.S. firm) knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 200,000 Swiss francs due to exports to Swiss operations, and cash outflows of 500,000 Swiss francs at the end of the year. While the future value of the Swiss franc is uncertain because it fluctuates, your best guess is that the Swiss franc’s value will be $1.10 at the end this year. What are the expected dollar cash flows of Bangor Co?
Assume that Concord Co. (a U.S. firm) is in the same industry as Bangor Co. There is no political risk that could have any impact on the cash flows of either firm. Concord Co. knows that it will have cash inflows of $900,000 from domestic operations, cash inflows of 700,000 Swiss francs due to exports to Swiss operations, and cash outflows of 800,000 Swiss francs at the end of the year. Is the valuation of the total cash flows of Concord Co. more uncertain or less uncertain than the…
Assume the following to be a portion of the simplified balance of payments statement for a hypothetical country. The values are given in billions of dollars.
Exports
Imports
Capital Outflows
Capital Inflows
$900
- $675
- $225
$135
If the central bank has not changed its holding of foreign-currency reserves during this period, then the capital-service account for this country should be equal to
billion.
The correlation between Canadian Dollar (CAD) and Japanese Yen (JPY) is high, with CAD
often moving in the same direction to JPY. Assume that a U.S. firm anticipates the
equivalent of $2 million cash outflows in CAD and the equivalent of $2 million cash
inflows in JPY. The firm's exposure to exchange rate risk is:
O Low
High
Moderate
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