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Multinational Business Finance 14th edition David K. Eiteman, Arthur I. Stonehill, Michael H. Moffett - Solutions

Use the following Russian (Russian Federation) balance of payments data from the IMF to answer questions 3.14 through 3.17.1. Is Russia experiencing a net capital inflow?2. What is Russia's Total for Groups A and B?3. What is Russia's Total for Groups A through C?4. What is Russia's Total for
Euro Area Balance of Payments. Use the following Euro Area balance of payments data from the IMF to answer questions 3.18 through 3.21.1. Is the Euro Area experiencing a net capital inflow?2. What is the Euro Area's Total for Groups A and B?3. What is the Euro Area's Total for Groups A through C?4.
Assume the United States has the following import/export volumes and prices. It undertakes a major "devaluation" of the dollar, say 18% on average against all major trading partner' currencies. What is the pre-devaluation and post-devaluation trade balance?a. What is the pre-devaluation trade
Use the following India balance of payments data from the IMF (all items are for the current account) to answer questions 3.5 through 3.9.1. What is India's balance on goods?2. What is India's balance on services?3. What is India's balance on goods and services?4. What is the balance on goods,
What is a country's net international investment position, and how does it differ from the balance of payments?
What are the primary sub-components of the financial account? Analytically, what would cause net deficits or surpluses in these individual components?
Why is China's twin surpluses-a surplus in both the current and financial accounts-considered unusual?
What is the relationship between the balance of payments and a fixed or floating exchange rate regime?
What is the J-Curve adjustment path?
Has capital mobility improved steadily over the past 50 years?
What factors seem to play a role in a government's choice to restrict capital mobility?
Which do most countries control, capital inflows or capital outflows? Why?
How does capital mobility typically differ between industrialized countries and emerging market countries?
What does it mean to describe the balance of payments as a flow statement?
If the BOP were viewed as an accounting statement, would it be a balance sheet of the country's wealth, an income statement of the country's earnings, or a funds flow statement of money into and out of the country?
What are the main component accounts of the current account? Give one debit and one credit example for each component account for the United States. Discuss.
If the share price of Emaline, a New Orleans-based shipping firm, rises from $12 to $15 over a one-year period, what is the rate of return to the shareholder if the following:a. The company paid no dividendsb. The company paid a dividend of $1 per sharec. The company paid the dividend. The total
Assuming all of the same debt and equity values for Yehti Manufacturing in problem 9, with the sole exception that both A-shares and B-shares have the same voting rights, one vote per share:a. What proportion of the total long-term capital has been raised by A-shares?b. What proportion of voting
Lantau Beer is a Hong Kong-based brewery and files all of its financial statements in Hong Kong dollars (HK$). The company's European sales director, Phillipp Bosse, has been criticized for his performance. He disagrees, arguing that sales in Europe have grown steadily in recent years. Who is
Lantau Beer of Hong Kong borrowed Japanese yen under a long-term loan agreement several years ago. The company's new CFO believes, however, that what was originally thought to have been relatively "cheap debt" is no longer true. What do you think?
Mattel (US) achieved significant sales growth in its major international regions between 2001 and 2004. In its filings with the United States Security and Exchange Commission (SEC), it reported what percentage change in regional sales occurred as a result of exchange rate changes.a. What was the
Harrison Equipment of Denver, Colorado purchases all of its hydraulic tubing from manufacturers in mainland China. The company has recently completed a corporate-wide initiative in six sigma/lean manufacturing. Completed oil field hydraulic system costs were reduced 4% over a one-year period, from
The U.S. equity markets have delivered very different returns over the past 90 years. Use the following data arranged by decade to answer the following questions about these U.S. equity investment returns.a. Which period shown had the highest total returns? The lowest?b. Which decade had the
Spencer Grant is a New York-based investor. He has been closely following his investment in 100 shares of Vaniteux, a French firm that went public in February of 2010. When he purchased his 100 shares at €17.25 per share, the euro was trading at $1.360/€. Currently, the share is trading at
Spencer Grant chooses not to sell his shares at the time described in problem 3. He waits, expecting the share price to rise further after the announcement of quarterly earnings. His expectations prove correct; the share price rises to €31.14 per share after the announcement. He now wishes to
Using the same prices and exchange rates as in problem 4, Vaniteux (B), what would be the total return on the Vaniteux investment by Laurent Vuagnoux, a Paris-based investor?
In January 2003, Microsoft announced that it would begin paying a dividend of $0.16 per share. Given the following share prices for Microsoft stock in the recent past, how would a constant dividend of $0.16 per share per year have changed the company's average annual return to its shareholders over
Brian Carty, a prominent investor, is evaluating investment alternatives. If he believes an individual equity will rise in price from $59 to $71 in the coming one-year period, and the share is expected to pay a dividend of $1.75 per share, and he expects at least a 15% rate of return on an
During the 1960s, many conglomerates were created by a firm enjoying a high price/earnings ratio (P/E). They then used their highly-valued stock to acquire other firms that had lower P/E ratios, usually in unrelated domestic industries. These conglomerates went out of fashion during the 1980s when
A number of firms, especially in the United States, have had to lower their previously reported earnings due to accounting errors or fraud. Assume that Modern American (problem 7) had to lower its earnings to $5,000,000 from the previously reported $10,000,000. What might be its new market value
Dual classes of common stock are common in a number of countries. Assume that Yehti Manufacturing has the following capital structure at book value. The A-shares each have ten votes and the B-shares each have one vote per share.a. What proportion of the total long-term capital has been raised by
What are the predominant ownership forms in global business?
What is a hybrid? How may it be managed differently?
Define corporate governance and the various stakeholders involved in corporate governance. What is the difference between internal and external governance?
What are the four major types of governance regimes and how do they differ?
What are the primary drivers of corporate governance across the globe? Is the relative weight or importance of some drivers increasing over others?
Does good governance have a "value" in the marketplace? Do investors really reward good governance, or does good governance just attract a specific segment of investors?
How does ownership alter the control of a business organization? Is the control of a private firm that different from a publicly traded company?
Explain the assumptions and objectives of the stakeholder capitalization model?
Do shareholder wealth maximization and stakeholder capitalism have the same time-horizon for the strategic, managerial, and financial objectives of the firm? How do they differ?
How do shareholders in a publicly traded firm actually reap cash flow returns from their ownership? Who has control over which of these returns?
Are dividends really all that important to investors in publicly traded companies? Aren't capital gains really the point or objective of the investor?
1. Hermès International was a family-owned business for many years. Why did it then list its shares on a public market? What risks and rewards come from a public listing? 2. Bernard Arnault and LVMH acquired a large position in Hermès shares without anyone knowing. How did they do it and how did
Calculate the forward premium on the dollar (the dollar is the home currency) if the spot rate is €1.3300/$ and the 3-month forward rate is €1.3400/$?
Calculate the forward discount on the dollar (the dollar is the home currency) if the spot rate is $1.5800/£ and the 6-month forward rate is $1.5550/£?
Use the following cross rate table from Bloomberg to answer the following questions.a. Japanese yen per US dollar?b. US dollars per Japanese yen?c. US dollars per euro?d. Euros per US dollar?e. Japanese yen per euro?f. Euros per Japanese yen?g. Canadian dollars per US dollar?h. US dollars per
Define base currency, unit currency, price currency, and quote currency?
Why are cross currency rates of special interest when discussing inter-market arbitrage?
Why do percentage change calculations end up being rather confusing on occasion?
How is the global foreign exchange market structured? Is digital telecommunications replacing people?
Define and differentiate the different type of swap transactions in the foreign exchange markets?
What is a non-deliverable forward, and why does it exist?
1. Why does a country like Venezuela impose capital controls?2. In the case of Venezuela, what is the difference between the gray market and the black market?3. Create a financial analysis of Santiago's choices and use it to make a recommend a solution to his problem?
Theresa Nunn is planning a 30-day vacation on Pulau Penang, Malaysia, one year from now. The present charge for a luxury suite plus meals in Malaysian ringgit (RM) is RM1,045/day. The Malaysian ringgit presently trades at RM3.1350/$. She figures out the dollar cost today for a 30-day stay would be
Heidi Hoi Jensen is now evaluating the arbitrage profit potential in the same market after interest rates change. That anytime the difference in interest rates does not exactly equal the forward premium, it must be possible to make CIA profit one way or another?
Casper Landsten is a foreign exchange trader for a bank in New York. He has $1 million (or its Swiss franc equivalent) for a short term money market investment and wonders if he should invest in U.S. dollars for three months, or make a covered interest arbitrage investment in the Swiss franc. He
Casper Landsten, using the same values and assumptions as in the previous question, now decides to seek the full 4.800% return available in US dollars by not covering his forward dollar receipts - an uncovered interest arbitrage (UIA) transaction. Assess this decision?
One month after the events described in the previous two questions, Casper Landsten once again has $1 million (or its Swiss franc equivalent) to invest for three months. He now faces the following rates. Should he again ener into a covered interest arbitrage (CIA) investment?
Statoil, the national oil company of Norway, is a large, sophisticated, and active participant in both the currency and petrochemical markets. Although it is a Norwegian company, because it operates within the global oil market, it considers the U.S. dollar as its functional currency, not the
The separation of over 3,000 nautical miles and five time zones, money and foreign exchange markets in both London and New York are very efficient. The following information has been collected from the respective areas:Assumptions ________________London___________________New YorkSpot exchange rate
You are planning a ski vacation to Mt. Blanc in Chamonix, France, one year from now. You are negotiating over the rental of a chateau. The chateau's owner wishes to preserve his real income against both inflation and exchange rate changes, and so the present weekly rent of €9,800 (Christmas
The East Asiatic Company (EAC), a Danish company with subsidiaries all over Asia, has been funding its Bangkok subsidiary primarily with U.S. dollar debt because of the cost and availability of dollar capital as opposed to Thai baht-denominated (B) debt. The treasuer of EAC-Thailand is considering
Imagine that the mythical solid gold falcon, initially intended as a tribute by the Knights of Malta to the King of Spain in appreciation for his gift of the island of Malta to the order in 1530, has recently been recovered. The falcon is 14 inches high and solid gold, weighing approximately 48
The Argentine peso was fixed through a currency board at Ps1.00/$ throughout the 1990s. In January 2002 the Argentine peso was floated. On January 29, 2003 it was trading at Ps3.20/$. During that one year period Argentina's inflation rate was 20% on an annualized basis. Inflation in the United
Clayton Moore is the manager of an international money market fund managed out of London. Unlike many money funds that guarantee their investors a near risk-free investment with variable interest earnings, Clayton Moore's fund is a very aggressive fund that searches out relatively high interest
In 1999 the Economist magazine reported the creation of an index or standard for the evaluation of African currency values using the local prices of beer. Beer was chosen as the product for comparison because McDonald's had not peneterated the African continent beyond South Africa, and beer met
Grupo Bimbo, headquartered in Mexico City, is one of the largest bakery companies in the world. On January 1st, when the spot exchange rate is Ps10.80/$, the company borrows $25.0 million from a New York bank for one year at 6.80% interest (Mexican banks had quoted 9.60% for an equivalent loan in
AvtoVAZ OAO, a leading auto manufacturer in Russia, was launching a new automobile model in 2001, and is in the midst of completing a complete pricing analysis of the car for sales in Russia and export. The new car, the Kalina, would be initially priced at Rubles 260,000 in Russia, and if exported,
Derek Tosh is attempting to determine whether US/Japanese financial conditions are at parity. The current spot rate is a flat ¥89.00/$, while the 360-day forward rate is ¥84.90/$. Forecast inflation is 1.100% for Japan, and 5.900% for the US. The 360-day euro-yen deposit rate is 4.700%, and the
Terry Lamoreaux has homes in both Sydney, Australia and Phoenix, United States. He travels between the two cities at least twice a year. Because of his frequent trips he wants to buy some new, high quality luggage. He's done his research and has decided to go with a Briggs & Riley brand
Starbucks opened its first store in Zagreb, Croatia in October 2010. The price of a tall vanilla latte in Zagreb is 25.70kn. In New York City, the price of a tall vanilla latte is $2.65. The exchange rate bewteen Croatian kunas (kn) and U.S. dollars is kn5.6288/$. According to purchasing power
Assume that the export price of a Toyota Corolla from Osaka, Japan is ¥2,150,000. The exchange rate is ¥87.60/$. The forecast rate of inflation in the United States is 2.2% per year and is 0.0% per year in Japan. Use this data to answer the following questions on exchange rate pass through.a.
Takeshi Kamada, a foreign exchange trader at Credit Suisse (Tokyo), is exploring covered interest arbitrage possibilities. He wants to invest $5,000,000 or its yen equivalent, in a covered interest arbitrage between U.S. dollars and Japanese yen. He faced the following exchange rate and interest
Takeshi Kamada, Credit Suisse (Tokyo), observes that the ¥/$ spot rate has been holding steady, and both dollar and yen interest rates have remained relatively fixed over the past week. Takeshi wonders if he should try an uncovered interest arbitrage (UIA) and thereby save the cost of forward
Heidi Høi Jensen, a foreign exchange trader at J.P. Morgan Chase, can invest $5 million, or the foreign currency equivalent of the bank's short term funds, in a covered interest arbitrage with Denmark. Using the following quotes can Heidi make covered interest arbitrage (CIA) profit?
Define the law of one price carefully, noting its fundamental assumptions. Why are these assumptions so difficult to find in the real world in order to apply the theory?
Define uncovered interest arbitrage and explain what expectations an investor or speculator would need to undertake an uncovered interest arbitrage investment?
If someone you were working with argued that the current forward rate quoted on a currency pair is the market's expectation of where the future spot rate will end up, what would you say?
The term carry trade is used quite frequently in the business press. What does it mean, and what conditions and expectations do investors need to hold to undertake carry trade transactions?
Many academics and professionals have tested the foreign exchange and interest rate markets to determine their efficiency. What have they concluded?
How close does the Big Mac Index conform to the theoretical requirements for a one price measurement of purchasing power parity?
What is partial exchange rate pass-through, and how can it occur in efficient global markets?
How is the price elasticity of demand relevant to exchange rate pass-through?
1. Why are interest rates so low in the traditional core markets of USD and EUR? 2. What makes this "emerging market carry trade" so different from traditional forms of uncovered interest arbitrage? 3. Why are many investors shorting the dollar and the euro?
Tony Begay, a currency trader for Chicago-based Saguaro Funds, uses the following futures quotes on the British pound (£) to speculate on the value of the pound. British Pound Futures, US$/pound (CME)Contract = 62,500
Arthur Doyle is a currency trader for Baker Street, a private investment house in London. Baker Street's clients are a collection of wealthy private investors who, with a minimum stake of £250,000 each, wish to speculate on the movement of currencies. The investors expect annual returns in excess
Amber McClain, the currency speculator we met earlier in the chapter,sells eight June futures contracts for 500,000 pesos at the closing price quoted in Exhibit 7.1.a. What is the value of her position at maturity if the ending spot rate is $0.12000/Ps?b. What is the value of her position at
Cece Cao trades currencies for Sumatra Funds in Jakarta. She focuses nearly all of her time and attention on the U.S. dollar/Singapore dollar ($/S$) cross-rate. The current spot rate is $0.6000/S$. After considerable study, she has concluded that the Singapore dollar will appreciate versus the U.S.
Christoph Hoffeman trades currency for Kapinsky Capital of Geneva. Christoph has $10 million to begin with, and he must state all profits at the end of any speculation in U.S. dollars. The spot rate on the euro is $1.3358/€, while the 30-day forward rate is $1.3350/€.a. If Christoph believes
Christoph Hoffeman of Kapinsky Capital Geneva now believes the Swiss franc will appreciate versus the U.S. dollar in the coming three-month period. He has $100,000 to invest. The current spot rate is $0.5820/SF, the three-month forward rate is $0.5640/SF, and he expects the spot rates to reach
Peleh writes a put option on Japanese yen with a strike price of $0.008000/¥ (¥125.00/$) at a premium of 0.0080¢ per yen and with an expiration date six month from now. The option is for ¥12,500,000. What is Peleh's profit or loss at maturity if the ending spot rates are ¥110/$, ¥115/$,
Chavez S.A., a Venezuelan company, wishes to borrow $8,000,000 for eight weeks. A rate of 6.250% per annum is quoted by potential lenders in New York, Great Britain, and Switzerland using, respectively, international, British, and the Swiss-Eurobond definitions of interest (day count conventions).
Cachita Haynes works as a currency speculator for Vatic Capital of Los Angeles. Her latest speculative position is to profit from her expectation that the U.S. dollar will rise significantly against the Japanese yen. The current spot rate is ¥120.00/$. She must choose between the following 90-day
Assume a call option on euros is written with a strike price of $1.2500/€ at a premium of 3.80¢ per euro ($0.0380/€) and with an expiration date three months from now. The option is for €100,000. Calculate your profit or loss should you exercise before maturity at a time when the euro is
What is a foreign currency future?
Once an option has been purchased, only two prices or rates are part of the holder's decision making process. Which two and why?
The cash flows associated with a call option on euros by a U.S. dollar based investor occur at different points in time. What are they and how much does the time element matter?
An option's value declines over time, but it does not do it evenly. Explain what that means for option valuation?
Options are often described as in-the-money, at-the-money, or out-of-the-money. What does that mean and how is it determined?
What is the relationship or link between the forward rate and the foreign currency option premium?

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