Jake Nguyen runs a nervous hand through his once finely combed hair. He loosens his once perfectly knotted silk tie. And he rubs his sweaty hands across his once immaculately pressed trousers.
Today has certainly not been a good day.
Over the past few months, Jake had heard whispers circulating from Wall Street—whispers from the lips of investment bankers and stockbrokers famous for their outspokenness. They had whispered about a coming Japanese economic collapse—whispered because they had believed that publicly vocalizing their fears would hasten the collapse.
(a) Formulate Jake’s problem as a minimum cost flow problem, and draw the network for his problem. Identify the supply and demand nodes for the network.
(b) Which currency transactions must Jake perform in order to convert the investments from yen, rupiah, and ringgit into U.S. dollars to ensure that Grant Hill Associates has the maximum dollar amount after all transactions have occurred? How much money does Jake have to invest in U.S. bonds?
(c) The World Trade Organization forbids transaction limits because they promote protectionism. If no transaction limits exist, what method should Jake use to convert the Asian holdings from the respective currencies into dollars?
TABLE 1 Currency exchange rates
TABLE 2 Transaction cost, percent
TABLE 3 Transaction limits in equivalent of 1,000 dollars
(d) In response to the World Trade Organization’s mandate forbidding transaction limits, the Indonesian government introduces a new tax that leads to an increase of transaction costs for transaction of rupiah by 500 percent to protect their currency. Given these new transaction costs but no transaction limits, what currency transactions should Jake perform in order to convert the Asian holdings from the respective currencies into dollars?
(e) Jake realizes that his analysis is incomplete because he has not included all aspects that might influence his planned currency exchanges. Describe other factors that Jake should examine before he makes his final decision.

  • CreatedSeptember 22, 2015
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