Question 19 6 pts Discuss any benefits you can think of for a company to cross-list...

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Question 19 6 pts Discuss any benefits you can think of for a company to cross-list its equity shares on more than one national exchange, and to source new equity capital from foreign investors as well as domestic investors. (6 points) Question 18 10 pts On the Tokyo Stock Exchange, Honda Motor Company stock closed at 2,907 per share on Monday, June 6, 2016. Honda trades as and ADR on the NYSE. One underlying Honda share equals one ADR. On June 6, 2016, the X/$ spot exchange rate was 107.57/$1.00. (10 points) a) At this exchange rate, what is the no-arbitrage U.S. dollar price of one ADR? b) By comparison, Honda ADRs traded at $27.18. Do you think an arbitrage opportunity exists? Question 17 Use the information below to answer the following question. (10 points) Exchange Rate Interest Rate APR SO($/) $ 1.45 = 1.00 i$ 4 % F360($/) $ 1.48 = 1.00 i 3 % 10 pts 1) Compute one-year forward exchange rate (i.e., F360($/)) by using interest rate parity. 2) Do you think whether there is an arbitrage opportunity. If yes, propose the trading strategy and compute the arbitrage profits. Question 16 15 pts Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,000,000, and the exchange rate will be $1.40/. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $500,000, and the exchange rate will be $1.60/. You assess that the American economy will experience a boom with a 70 percent probability and a recession with a 30 percent probability. Compute the required numbers, basing on the regression framework. (15 points) (a) Estimate your exposure to the exchange risk. (b) Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. (c) How would you hedge this exposure? If you hedge, what is the variance of the pound value of the hedged position? Question 15 10 pts Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed 20 million which is payable in one year. The current spot exchange rate is $1.05/ and the one-year forward rate is $1.10/. The annual interest rate is 6.0% in the U.S. and 5.0% in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. (10 points) (a) It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Credit Lyonnaise against the euro receivable. Which alternative would you recommend? Why? (b) Provide why the above two alternatives have different results (indicate the specific parity condition). Other things being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods? Question 14 10 pts Economic exposure can be defined as risk where company values are affected by unexpected changes in foreign exchange rates and has two channels; asset exposure and operating exposure. Explain what is operating exposure and discuss how to address operating exposure. (10 points) Question 19 6 pts Discuss any benefits you can think of for a company to cross-list its equity shares on more than one national exchange, and to source new equity capital from foreign investors as well as domestic investors. (6 points) Question 18 10 pts On the Tokyo Stock Exchange, Honda Motor Company stock closed at 2,907 per share on Monday, June 6, 2016. Honda trades as and ADR on the NYSE. One underlying Honda share equals one ADR. On June 6, 2016, the X/$ spot exchange rate was 107.57/$1.00. (10 points) a) At this exchange rate, what is the no-arbitrage U.S. dollar price of one ADR? b) By comparison, Honda ADRs traded at $27.18. Do you think an arbitrage opportunity exists? Question 17 Use the information below to answer the following question. (10 points) Exchange Rate Interest Rate APR SO($/) $ 1.45 = 1.00 i$ 4 % F360($/) $ 1.48 = 1.00 i 3 % 10 pts 1) Compute one-year forward exchange rate (i.e., F360($/)) by using interest rate parity. 2) Do you think whether there is an arbitrage opportunity. If yes, propose the trading strategy and compute the arbitrage profits. Question 16 15 pts Suppose you are a British venture capitalist holding a major stake in an e-commerce start-up in Silicon Valley. As a British resident, you are concerned with the pound value of your U.S. equity position. Assume that if the American economy booms in the future, your equity stake will be worth $1,000,000, and the exchange rate will be $1.40/. If the American economy experiences a recession, on the other hand, your American equity stake will be worth $500,000, and the exchange rate will be $1.60/. You assess that the American economy will experience a boom with a 70 percent probability and a recession with a 30 percent probability. Compute the required numbers, basing on the regression framework. (15 points) (a) Estimate your exposure to the exchange risk. (b) Compute the variance of the pound value of your American equity position that is attributable to the exchange rate uncertainty. (c) How would you hedge this exposure? If you hedge, what is the variance of the pound value of the hedged position? Question 15 10 pts Boeing just signed a contract to sell a Boeing 737 aircraft to Air France. Air France will be billed 20 million which is payable in one year. The current spot exchange rate is $1.05/ and the one-year forward rate is $1.10/. The annual interest rate is 6.0% in the U.S. and 5.0% in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure. (10 points) (a) It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from Credit Lyonnaise against the euro receivable. Which alternative would you recommend? Why? (b) Provide why the above two alternatives have different results (indicate the specific parity condition). Other things being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods? Question 14 10 pts Economic exposure can be defined as risk where company values are affected by unexpected changes in foreign exchange rates and has two channels; asset exposure and operating exposure. Explain what is operating exposure and discuss how to address operating exposure. (10 points)