International Financial Management 9th. Edition by Jeff Madura | 9780324568202 | 324568207 | Holooly

Financial Management

International Financial Management

125 SOLVED PROBLEMS

Question: 8.MSE.4

a. The dollar is presently worth .8 euros. What is the direct exchange rate of the euro? b. The direct exchange rate of the euro is presently valued higher than it was last month. What does this imply about the movement of the indirect exchange rate of the euro over the last month? c. The Wall ...

Verified Answer:

a. A euro $1.25. b. The indirect value of the euro...

Question: 21.FSE.14

Assume the following direct exchange rate of the Swiss franc and Argentine peso at the beginning of each of the last 7 years. a. Assume that you forecast that the Swiss franc will appreciate by 3 percent over the next year, but you realize that there is much uncertainty surrounding your forecast. Use the value-at-risk method to estimate (based on a 95 percent confidence level) the maximum ...

Verified Answer:

a. The standard deviation of the annual movements ...

Question: 8.MSE.5

Assume that the Polish currency (called zloty) is worth $.32. The U.S. dollar is worth .7 euros. A U.S. dollar can be exchanged for 8 Mexican pesos. Last year a dollar was valued at 2.9 Polish zloty, and the peso was valued at $.10. a. Would U.S. exporters to Mexico that accept pesos as payment be ...

Verified Answer:

a. The peso is valued at $.125 today. Since the pe...

Question: 9.ST.1

Assume that the annual U.S. return is expected to be 7 percent for each of the next 4 years, while the annual interest rate in Mexico is expected to be 20 percent. Determine the appropriate 4-year forward rate premium or discount on the Mexican peso, which could be used to forecast the percentage ...

Verified Answer:

U.S. 4-year interest rate = ( 1 + .07 )

^{4}...

Question: 8.MSE.3

Is outsourcing by U.S. firms to foreign countries beneficial to the U.S. economy? Weigh the pros and cons, and offer your conclusions. ...

Verified Answer:

Outsourcing can be beneficial to the U.S. economy ...

Question: 8.MSE.6

Explain how each of the following conditions would be expected to affect the value of the Mexican peso. ...

Verified Answer:

a. Depreciate b. Appreciate c. Depreciate d. Appre...

Question: 8.MSE.7

One year ago, you sold a put option on 100,000 euros with an expiration date of one year. You received a premium on the put option of $.05 per unit. The exercise price was $1.22. Assume that one year ago, the spot rate of the euro was $1.20. One year ago, the one-year forward rate of the euro ...

Verified Answer:

a. The spot rate depreciated from $1.20 to $1.152....

Question: 8.MSE.8

Assume that the Federal Reserve wants to reduce the value of the euro with respect to the dollar. How could it attempt to use indirect intervention to achieve its goal? What is a possible adverse effect from this type of intervention? ...

Verified Answer:

The Fed could use indirect intervention by raising...

Question: 8.MSE.9

Assume that interest rate parity exists. The one-year nominal interest rate in the United States is 7 percent, while the one-year nominal interest rate in Australia is 11 percent. The spot rate of the Australian dollar is $.60. Today, you purchase a one-year forward contract on 10 million ...

Verified Answer:

[(1.07)/(1.11)] - 1 = -3.60%. So the one-year forw...

Question: 8.MSE.10

You go to a bank and are given these quotes:You can buy a euro for 14 Mexican pesos.The bank will pay you 13 pesos for a euro.You can buy a U.S. dollar for .9 euros.The bank will pay you .8 euros for a U.S. dollar.You can buy a U.S. dollar for 10 pesos.The bank will pay you 9 pesos for a U.S. ...

Verified Answer:

Yes, you can generate a profit by converting dolla...

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