Bing Ltd a UK based company is due to pay 80 million Lira to Google Ltd. The
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b) Hilton a US based Multinational Company will receive 2,000,000 Euros in one year time from items it exported. It did not hedge this transaction; Hilton believes that the future value of the Euro will be determined by Purchasing Power Parity (PPP). It expects that inflation in countries using Euro will be 12% next year, while inflation in the US will be 7% next year. The spot rate of Euro is $ 1.46 and the one-year forward rate is $1.50 Required: i. Estimate the amount of US dollars that Hilton will receive in the one year when converting its Euro receivables into US dollars ii. The spot rate of the Australian dollar is pegged at $ 0.13. Hilton believes that the Australian dollar will remain pegged to the US dollar for the next year. If Hilton decides to convert its 2 million Euros into Australian dollar instead of US dollars at the end of one year, estimate the amount of Australian dollars that Hilton will receive in one year when converting its Euro receivables into Australian dollars.
c) METL Group, Tanzanian home-grown with a presence in eleven countries in Africa appoints highly qualified and technically trained managers. The group decided to expand its operations after realizing that the Tanzanian market has matured. It is group's policy to invest in its people and infrastructure. It also takes advantage of the availability of cheap materials other factors of production although there is strong domestic competition from other giants such as Azam group, METL has focused on producing products that does better than that of its rivals. The market segment chosen by METL does not necessitate sophistication of products given the nature of the customers it services. Required Using MELT as a case study discusses factors for the growth of global business and MNCs.
a) Write short notes on the following: i. Features of interest rate futures ii. Floating to fixed interest rate swaps
b) Discuss “Accounting exposure and its impact on shareholders wealth maximization of a multinational corporation.
c) It is early January 2022. CBG Resources limited intends to borrow £ 2 million in May for three months and is concerned about the risk of rising interest rates. It can borrow at LIBOR plus 1%. The current three-month LIBOR rate (spot rate) is 4.625%. June futures for short sterling have a current market price of 95.35.
REQUIRED:
i. Show how CBG Resources can set up for the exposure to the risk of an increase in the three-month LIBOR rate.
ii. Calculate the gain/loss from the interest rate future contract if in May the three-month LIBOR is 5.5% and the June futures price is 94.25.
Related Book For
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
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