Download Ch27 Solations Brigham 10th E

Visualização do documento
Ch27 Solations Brigham 10th E.doc
(101 KB) Baixar
Chapter 27
Multinational Financial Management
ANSWERS TO END-OF-CHAPTER QUESTIONS
27-1
a.
A multinational corporation is one which
operates in two or more countries.
b.
The exchange rate specifies the number of units of a given
currency that can be purchased for one unit of another currency.
c.
The fixed exchange rate system was in effect from the end
of World War II until August 1971. Under the system, the U. S. dollar
was linked to gold at the rate of $35 per ounce, and other currencies
were then tied to the dollar. Under the floating exchange rate system,
which is currently in effect, the forces of supply and demand are
allowed to determine currency prices with little government
intervention.
d.
A country has a deficit trade balance when it imports
more goods from abroad than it exports.
e.
Devaluation is the lowering, by governmental action, of
the price of its currency relative to another currency. For example,
in 1967 the British pound was devalued from $2.80 per pound to $2.50
per pound. Revaluation, the opposite of devaluation, occurs when the
relative price of a currency is increased.
f.
Exchange rate risk refers to the fluctuation in exchange
rates between currencies over time. A convertible currency is one
which can be traded in the currency markets and can be redeemed at
current market rates.
g.
When an exchange rate is pegged, the rate is fixed against
a major currency such as the U. S. dollar. Consequently, the values
of the pegged currencies move together over time.
h.
Interest rate parity holds that investors should expect
to earn the same return in all countries after adjusting for
risk. Purchasing power parity, sometimes referred to as the “law of
one price,” implies that the level of exchange rates adjusts so that
identical goods cost the same in different countries.
i.
The spot rate is the exchange rate which applies to “on
the spot” trades, or, more precisely, exchanges that occur two days
following the day of trade. In other words, the spot rate is for
current exchanges. The forward exchange rate is the prevailing exchange
rate for exchange (delivery) at some agreed-upon future date, usually
30,
90,
or
180
days
from
the
day
the
transaction
is
negotiated. Forward exchange rates are analogous to future prices on
commodity exchanges.
Harcourt, Inc. items and derived items copyright © 2002 by Harcourt, Inc.
27-2
Answers and Solutions: 27 - 5
j.
Discounts (or premiums) on forward rates occur when the
forward exchange rate differs from the spot rate. When the forward
rate is below the spot rate, the forward rate is said to be at a
discount. Conversely, when the forward rate is above the spot rate, it
is said to be at a premium.
k.
Repatriation of earnings is the cash flow, usually in the
form of dividends or royalties, from the foreign branch or subsidiary
to the parent company. These cash flows must be converted to the
currency of the parent, and thus are subject to future exchange rate
changes. A foreign government may restrict the amount of cash that
may be repatriated.
Political risk refers to the possibility of
expropriation and to the unanticipated restriction of cash flows to
the parent by a foreign government.
l.
A Eurodollar is a U. S. dollar on deposit in a foreign
bank, or a foreign branch of a U. S. bank. Eurodollars are used to
conduct transactions throughout Europe and the rest of the world. An
international bond is any bond sold outside of the country of the
borrower. There are two types of international bonds: Eurobonds and
foreign bonds. A Eurobond is any bond sold in some country other than
the one in whose currency the bond is denominated. Thus, a U. S. firm
selling dollar bonds in Switzerland is selling Eurobonds. A foreign
bond is a bond sold by a foreign borrower but denominated in the
currency of the country in which the issue is sold. Thus, a U. S.
firm selling bonds denominated in Swiss francs in Switzerland is
selling foreign bonds.
m.
The Euro is a proposed new currency to be used by the
nations in the European Monetary Union who signed the Treaty of
Mastricht. Eurocurrencies are international currencies such as German
marks, Swiss francs, and Japanese yen that are deposited outside their
home countries, and are handled in exactly the same way as Eurodollars.
The U. S. dollar. The primary reason for using the dollar
was that it provided a relatively stable benchmark, and it was accepted
universally for transaction purposes.
27-3
27-4
Under the fixed exchange rate system, the fluctuations were
limited to +1% and -1%. Under the floating exchange rate system, there
are no agreed-upon limits.
A dollar will buy more French francs.
27-5
There will be an excess supply of dollars in the foreign
exchange markets, and thus, will tend to drive down the value of the
dollar. Foreign investments in the United States will increase.
27-6
Taking into account differential labor costs abroad,
transportation, tax advantages, and so forth, U. S. corporations can
maximize long-run profits. There are also nonprofit behavioral and
strategic considerations, such as maximizing market share and enhancing
the prestige of corporate officers.
27-7
The foreign project’s cash flows have to be converted to U.
S. dollars, since the shareholders of the U. S. corporation (assuming
they are mainly U. S. residents) are interested in dollar returns. This
subjects them to exchange rate risk, and therefore requires an additional
risk premium. There is also a risk premium for political risk (mainly the
risk of expropriation). However, foreign investments also help diversify
cash flows, so the net effect on the required rate of return is ambiguous.
27-8
A Eurodollar is a dollar deposit in a foreign bank, normally
a European bank. The foreign bank need not be owned by foreigners--it
only has to be located in a foreign country. For example, a Citibank
subsidiary in Paris accepts Eurodollar deposits. The Frenchman’s deposit
at Chase Manhattan Bank in New York is not a Eurodollar deposit. However,
if he transfers his deposit to a bank in London or Paris, it would be.
The existence of the Eurodollar market makes the Federal Reserve’s job
of controlling U. S. interest rates more difficult.
Eurodollars are
outside the direct control of the U. S. monetary authorities. Because of
this, interest rates in the U. S. cannot be insulated from those in other
parts of the world. Thus, any domestic policies the Federal Reserve might
take toward interest rates would be affected by the Eurodollar market.
27-9
No, interest rate parity implies that an investment in the U.
S. with the same risk as a similar investment in a foreign country should
have the same return. Interest rate parity is expressed as:
.
Interest rate parity shows why a particular currency might be at a
forward premium or discount. A currency is at a forward premium whenever
domestic interest rates are higher than foreign interest rates. Discounts
prevail if domestic interest rates are lower than foreign interest rates.
If these conditions do not hold, then arbitrage will soon force interest
rates back to parity.
27-10
Purchasing power parity assumes there are neither
transaction costs nor regulations which limit the ability to buy and sell
goods across different countries. In many cases, these assumptions are
incorrect, which explains why PPP is often violated.
An additional
complication, when empirically testing to see whether PPP holds, is that
products in different countries are rarely identical. Frequently, there
are real or perceived differences in quality, which can lead to price
differences in different countries.
SOLUTIONS TO END-OF-CHAPTER PROBLEMS
27-1
$1 = 1,498.2 Italian lira; $1 = 111.23 Japanese yen; Cross
exchange rate, yen/lira = ?
Cross Rate:
=
.
Note that an indirect quotation is given for Italian lira; however, the
cross rate formula requires a direct quotation. The indirect quotation
is the reciprocal of the direct quotation. Since $1 = 1,498.2 lira, then
1 lira = $0.0006675.
Yen/Lira = 0.0006675 dollars per lira  111.23 yen per
dollar
= 0.07425 yen per lira.
27-2
k , 6-month T-bills = 7%; k of similar default-free 6-month
Japanese bonds = 5.5%; Spot exchange rate: 1 Yen = $0.009; 6-month forward
exchange rate = f = ?
Nom
Nom
t
.
k = 5.5%/2 = 2.75%.
f
k = 7%/2 = 3.5%.
h
e = $0.009.
0
=
1.0275 f
f
t
t
= $0.00932
= $0.00907.
The 6-month forward exchange rate is 1 yen = $0.00907.
27-3
U. S. T.V. = $500; French T.V. = 2,535 French francs;
rate between franc and dollar = ?
Spot
P = P (e )
$500 = 2,535 French francs(e )
500/2,535 = e
$0.19724 = e .
h
f
0
0
0
0
27-4
1 French franc = $0.19724 or $1 = 5.07 French francs.
Dollars should sell for 1/1.50, or 0.6667 pounds per dollar.
27-5
The price of francs is $0.20 today. A 10 percent appreciation
will make it worth $0.22 tomorrow. A dollar will buy 1/0.22 = 4.5455
francs tomorrow.
27-6
Cross rate = francs/dollars  dollars/pounds = francs/pounds
= 5.9  1.5 = 8.85 francs per pound.
27-7
The answer to this question would depend upon the rates
existing at the time the assignment is made. Using the rates quoted in
the Foreign Exchange table of the June 17, 1998, issue of The Wall Street
Journal:
U. S. $ Equivalent
Currency per U.
S. $
British
pound
1.6515
0.6055
French
franc
0.1658
6.0325
Cross rate = francs/dollars  dollars/pounds = francs/pounds
= 6.0325  1.6515 = 9.96267 francs per pound.
27-8
This year’s dividend = 3.0 pounds = $4.80 per share. The
dividend, in pounds, grows at 10 percent, but the pound depreciates at 5
percent.
Thus, the dollar dividend will grow at 5 percent.
Using the perpetual growth valuation formula, we get the following:
Value per share = $4.80/(0.15 - 0.05) = $48.00.
Therefore, the total value of the equity is $48.00
$480,000,000.
27-9

10,000,000 =
The U. S. dollar liability of the corporation falls from
$0.75(5,000,000)
=
$3,750,000
to
$0.70(5,000,000)
=
$3,500,000,
corresponding
to
a
gain
of
250,000
U.
S.
dollars
for
the
corporation.
However, the real economic situation might be somewhat
different. For example, the loan is presumably a long-term loan. The
exchange rate will surely change again before the loan is paid. What
really matters, in an economic sense, is the expected present value of
future
interest
and
principal
payments
denominated
in
U.
S.
dollars. There are also possible gains and losses on inventory and other
assets of the firm. A discussion of these issues quickly takes us outside
the scope of this textbook.
27-10
From Table 27-1:
U. S. Dollars
Required to
Buy One Unit of
Foreign Currency
Currency
1,000 =
in Dollars
German
mark
1,000 =
$427.20
Italian lira
1,000 =
0.43
Japanese yen
1,000 =
9.23
Mexican
peso
0.1043
1,000 =
104.30
Swiss
franc
 1,000 =
27-11
Currency
Purchase Price

0.4272

0.0004315


0.009233

0.5559
555.90
a.
Again the answer to this problem depends on
the
date
it
is
assigned.
If the exchange rates taken from the June 17, 1998 issue of The Wall
Street Journal are used; then the following information is obtained:
U. S. Dollars
Required to
Buy One Unit of
Currency
 1,000
=
Purchase Price
Foreign
in Dollars
German mark
1,000
=
1,000
=
0.5559
Italian lira
0.56
Japanese yen...
0.0005643
Arquivo da conta:
enryksss
Outros arquivos desta pasta:




Ameritrade Case solution.xls (147 KB)
Ch01 Solations Brigham 10th E.doc (57 KB)
Ch02 Solations Brigham 10th E.doc (117 KB)
 Ch02-20 Mod.xls (35 KB)
Ch03 Solations Brigham 10th E.doc (296 KB)
Outros arquivos desta conta:
Relatar se os regulamentos foram violados









$555.90
Página inicial
Contacta-nos
Ajuda
Opções
Termos e condições
Política de privacidade
Reportar abuso
Copyright © 2012 Minhateca.com.br
