A US MNC tries to sell off its assets in France and retain US dollars back....
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
A US MNC tries to sell off its assets in France and retain US dollars back. Now the company is facing three scenarios, and the euro value of its French assets and the exchange rate under each scenario is indicated in the table below. (a) Please answer the dollar value of the company's French assets under each case. (b) State Scenario 1 Scenario 2 Scenario 3 Probability 1/3 1/3 1/3 Euro Value €1900 €2.000 €2.100 Exchange Rate Dollar Value $1.35/€ $1.50/€ $1.65/€ Please solve for the economic exposure of the company's French assets. In other words, how does the change of exchange rate affect the dollar value of the assets. To answer this question, you need to build a model Dollar value of French Assets = alpha + beta* Exchange Rate And then solve for beta. Hint: use the statistics function of your calculator. Choose linear regression for calculation. (c) Implication For hedging the risk, the company should sell € 1-year forward at $1.50/€. Please calculate: a. $ net cash flow when the French assets is worth €980, if the exchange rate is $1.35/€ one year later b. $ net cash flow when the French assets is worth €1,000, and the exchange rate is $1.50/€ c. $ net cash flow when the French assets is worth €1,070, and the exchange rate is $1.65/€ A US MNC tries to sell off its assets in France and retain US dollars back. Now the company is facing three scenarios, and the euro value of its French assets and the exchange rate under each scenario is indicated in the table below. (a) Please answer the dollar value of the company's French assets under each case. (b) State Scenario 1 Scenario 2 Scenario 3 Probability 1/3 1/3 1/3 Euro Value €1900 €2.000 €2.100 Exchange Rate Dollar Value $1.35/€ $1.50/€ $1.65/€ Please solve for the economic exposure of the company's French assets. In other words, how does the change of exchange rate affect the dollar value of the assets. To answer this question, you need to build a model Dollar value of French Assets = alpha + beta* Exchange Rate And then solve for beta. Hint: use the statistics function of your calculator. Choose linear regression for calculation. (c) Implication For hedging the risk, the company should sell € 1-year forward at $1.50/€. Please calculate: a. $ net cash flow when the French assets is worth €980, if the exchange rate is $1.35/€ one year later b. $ net cash flow when the French assets is worth €1,000, and the exchange rate is $1.50/€ c. $ net cash flow when the French assets is worth €1,070, and the exchange rate is $1.65/€
Expert Answer:
Answer rating: 100% (QA)
A Dollar value table dollar value is derived by multiplyi... View the full answer
Related Book For
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta
Posted Date:
Students also viewed these general management questions
-
How does a change in interest rates affect business borrowing?
-
To answer this question you need to use the data in APPLE.RAW. (i) Define a binary variable ecobuy that takes the value 1 when ecolbs > 0 and 0 when ecobls = 0. In other words, at a given price,...
-
How would you define economic exposure to exchange risk?
-
Giroud plc is considering two alternative investment opportunities. Each of the two projects has an expected life of five years and requires an initial investment of $100,000. A feasibility study...
-
Another technical indicator is the put/call ratio. The put/call ratio is the number of put options traded divided by the number of call options traded. The put/call ratio can be constructed on the...
-
Sally Leiner was the sole shareholder, director, and president of Ecco Bella, Inc., a New Jersey corporation. On various occasions, African Bio-Botanica, Inc., sold Leiner and/or Ecco Bella...
-
On January 1,2020 , Sharp Company purchased \(\$ 50,000\) of Sox Company \(6 \%\) bonds, at a time when the market rate was \(5 \%\). The bonds mature on December 31, 2024, and pay interest annually...
-
Bonita Labs performs steroid testing services to high schools, colleges, and universities. Because the company deals solely with educational institutions, the price of each test is strictly...
-
Read the article from Balance Careers. What is Included in a Reference Check for Employment What did you learn that you may not have experienced or thought of? How does this change how you use...
-
What are the four kinds of resources?
-
A village has six residents, each of whom has accumulated savings of $100. Each villager can use this money either to buy a government bond that pays 10 percent interest per year or to buy a...
-
Q.3 The stiffness of the beam shown in Figure 2 is EI = 200 kN m and the section modulus is 35 10 mm. (a) Determine the deflection of B and the bending stresses at A and B. (b) Repeat part (a) but...
-
Calculate profit maximizing(or loss-minimizing) level of output? The figure above shows the demand and cost curves facing a price-setting firm. The profit- maximizing (or loss-minimizing) level of...
-
Which example BEST describes market research applied to the campaign development stage of the marketing process? OJ. Crew Sales associates are asked to either offer assistance to shoppers or wait to...
-
2) Consider a spherical solenoid with N turns and a radius ro. Initially, it is hollow, and there is a current i(t) = locoswt flowing through each coil. Refer to the figure. a) Calculate the reverse...
-
Brie recently finished her Business Program at Northwood Tech and was gifted $10,000 as a graduation gift. Her credit union offers special savings plans for students who finish Math with Business...
-
Per Unit Total Direct materials $ 4.70 Direct labor $ 3.70 Variable manufacturing overhead $ 1.70 Fixed manufacturing overhead $ 74,400 Variable selling and administrative expenses $ 1.70 Fixed...
-
Kims Konstructions has assembled the following data for a proposed straw-reinforced brick maker (SRBM): SRBM Cost: $26,000 Life: 5 years Revenue (p.a.) $11,000 Operating Expenses (p.a.) $3,000...
-
Bing and Monica Cherrie require a mortgage of $145,000 and can afford monthly payments of $1,150 on the mortgage. Current interest rates are 4 percent compounded semiannually. How long should the...
-
Air Filter Ltd. sells its products for $6 per unit. It has the following costs. Separate the expenses between fixed and variable costs per unit. Using this information and the sales price per unit of...
-
In the previous problem, what is the P/E ratio if the firm sells at two times book value per share? Previous problem Phelps Labs has assets of $1,800,000, current liabilities of $595,000, and...
-
Determine if 1,429 is prime or composite.
-
Using divisibility rules, determine if 43,568 is divisible by 4 .
-
Find the prime factorization of 90 .
Study smarter with the SolutionInn App