国际财务管理-英文版答案答案翻译
国际财务管理(英文版)课后习题答案2
CHAPTER 1GLOBALIZATION AND THE MULTINATIONAL FIRMSUGGESTED ANSWERS TO END—OF-CHAPTER QUESTIONS QUESTIONS1 。
Why is it important to study international financial management？Answer: We are now living in a world where all the major economic functions, i.e.，consumption，production, and investment，are highly globalized. It is thus essential for financial managers to fully understand vital international dimensions of financial management. This global shift is in marked contrast to a situation that existed when the authors of this book were learning finance some twenty years ago. At that time, most professors customarily (and safely, to some extent) ignored international aspects of finance 。
This mode of operation has become untenable since then.2. How is international financial management different from domestic financial management？Answer ：There are three major dimensions that set apart international finance from domestic finance 。
国际财务管理课后习题答案(第六章)
CHAPTER 6 INTERNATIONAL PARITY RELATIONSHIPSSUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1。
Give a full definition of arbitrage。
Answer：Arbitrage can be defined as the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making certain, guaranteed profits。
2. Discuss the implications of the interest rate parity for the exchange rate determination。
Answer：Assuming that the forward exchange rate is roughly an unbiased predictor of the future spot rate, IRP can be written as:S = ［(1 + I£)/(1 + I$）］E[S t+1|I t］。
The exchange rate is thus determined by the relative interest rates，and the expected future spot rate，conditional on all the available information，I t, as of the present time。
One thus can say that expectation is self-fulfilling. Since the information set will be continuously updated as news hit the market, the exchange rate will exhibit a highly dynamic，random behavior.3. Explain the conditions under which the forward exchange rate will be an unbiased predictor of the future spot exchange rate.Answer: The forward exchange rate will be an unbiased predictor of the future spot rate if （I) the risk premium is insignificant and （ii) foreign exchange markets are informationally efficient。
国际财务管理课后习题答案(第六章)
CHAPTER 6 INTERNATIONAL PARITY RELATIONSHIPSSUGGESTED ANSWERS AND SOLUTIONS TO END-OF—CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1。
Give a full definition of arbitrage。
Answer:Arbitrage can be defined as the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making certain，guaranteed profits。
2. Discuss the implications of the interest rate parity for the exchange rate determination.Answer: Assuming that the forward exchange rate is roughly an unbiased predictor of the future spot rate, IRP can be written as:S = ［(1 + I£)/(1 + I$)]E［S t+1 I t］。
The exchange rate is thus determined by the relative interest rates，and the expected future spot rate，conditional on all the available information, I t，as of the present time。
One thus can say that expectation is self—fulfilling. Since the information set will be continuously updated as news hit the market，the exchange rate will exhibit a highly dynamic, random behavior。
国际财务管理（英文版）课后习题答案6
国际财务管理（英⽂版）课后习题答案6CHAPTER 5 THE MARKET FOR FOREIGN EXCHANGESUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Give a full definition of the market for foreign exchange.Answer: Broadly defined, the foreign exchange (FX) market encompasses the conversion of purchasing power from one currency into another, bank deposits of foreign currency, the extension of credit denominated in a foreign currency, foreign trade financing, and trading in foreign currency options and futures contracts.2. What is the difference between the retail or client market and the wholesale or interbank market for foreign exchange? Answer: The market for foreign exchange can be viewed as a two-tier market. One tier is the wholesale or interbank market and the other tier is the retail or client market. International banks provide the core of the FX market. They stand willing to buy or sell foreign currency for their own account. These international banks serve their retail clients, corporations or individuals, in conducting foreign commerce or making international investment in financial assets that requires foreign exchange. Retail transactions account for only about 14 percent of FX trades. The other 86 percent is interbank trades between international banks, or non-bank dealers large enough to transact in the interbank market.3. Who are the market participants in the foreign exchange market?Answer: The market participants that comprise the FX market can be categorized into five groups: international banks, bank customers, non-bank dealers, FX brokers, and central banks. International banks provide the core of the FX market. Approximately 100 to 200 banks worldwide make a market in foreign exchange, i.e., they stand willing to buy or sell foreign currency for their own account. These international banks serve their retail clients, the bank customers, in conducting foreign commerce or making international investment in financial assets that requires foreign exchange. Non-bank dealers are large non-bank financial institutions, such as investment banks, mutual funds, pension funds, and hedge funds, whose size and frequency of trades make it cost- effective to establish their own dealing rooms to trade directly in the interbank market for their foreign exchange needs.Most interbank trades are speculative or arbitrage transactions where market participants attempt to correctly judge the future direction of price movements in one currency versus another or attempt to profit from temporary price discrepancies in currencies between competing dealers.FX brokers match dealer orders to buy and sell currencies for a fee, but do not take a position themselves. Interbank traders use a broker primarily to disseminate as quickly as possible a currency quote to many other dealers.Central banks sometimes intervene in the foreign exchange market in an attempt to influence the price of its currency against that of a major trading partner, or a country that it “fixes” or “pegs” its currency against. Intervention is the process of using foreign currency reser ves to buy one’s own currency in order to decrease its supply and thus increase its value in the foreign exchange market, or alternatively, selling one’s own currency for foreign currency in order to increase its supply and lower its price.4. How are foreign exchange transactions between international banks settled?Answer: The interbank market is a network of correspondent banking relationships, with large commercial banks maintaining demand deposit accounts with one another, called correspondent bank accounts. The correspondent bank account network allows for the efficient functioning of the foreign exchange market. As an example of how the network of correspondent bank accounts facilities international foreign exchange transactions, consider a U.S. importer desiring to purchase merchandise invoiced in guilders from a Dutch exporter. The U.S. importer will contact his bank and inquire about the exchange rate. If the U.S. importer accepts the offered exchange rate, the bank will debit the U.S. importer’s account for the purchase of the Dutch guilders. The bank will instruct its correspondent bank in the Netherlands to debit its correspondent bank account the appropriate amount of guilders and to credit the Dutch exporter’s bank account. The importer’s bank will then debit its books to offset the debit of U.S. importer’s account, reflecting the decrease in its correspondent bank account balan ce.5. What is meant by a currency trading at a discount or at a premium in the forward market?Answer: The forward market involves contracting today for the future purchase or sale of foreign exchange. The forward price may be the same as the spot price, but usually it is higher (at a premium) or lower (at a discount) than the spot price.6. Why does most interbank currency trading worldwide involve the U.S. dollar?Answer: Trading in currencies worldwide is against a common currency that has international appeal. That currency has been the U.S. dollar since the end of World War II. However, the euro and Japanese yen have started to be used much more as international currencies in recent years. More importantly, trading would be exceedingly cumbersome and difficult to manage if each trader made a market against all other currencies.7. Banks find it necessary to accommodate their clients’ needs to buy or sell FX forward, in many instances for hedging purposes. How can the bank eliminate the currency exposure it has created for itself by accommodating a client’s forward transaction?Answer: Swap transactions provide a means for the bank to mitigate the currency exposure in a forward trade. A swap transaction is the simultaneous sale (or purchase) of spot foreign exchange against a forward purchase (or sale) of an approximately equal amount of the foreign currency. To illustrate, suppose a bank customer wants to buy dollars three months forward against British pound sterling. The bank can handle this trade for its customer and simultaneously neutralize the exchange rate risk in the trade by selling (borrowed) British pound sterling spot against dollars. The bank will lend the dollars for three months until they are needed to deliver against the dollars it has sold forward. The British pounds received will be used to liquidate the sterling loan.8. A CD/$ bank trader is currently quoting a small figure bid-ask of 35-40, when the rest of the market is trading at CD1.3436-CD1.3441. What is implied about the trader’s beliefs by his prices?Answer: The trader must think the Canadian dollar is going to appreciate against the U.S. dollar and therefore he is trying to increase his inventory of Canadian dollars by discouraging purchases of U.S. dollars by standing willing to buy $ at onlyCD1.3435/$1.00 and offering to sell from inventory at the slightly lower than market price of CD1.3440/$1.00.9. What is triangular arbitrage? What is a condition that will give rise to a triangular arbitrage opportunity?Answer: Triangular arbitrage is the process of trading out of the U.S. dollar into a second currency, then trading it for a third currency, which is in turn traded for U.S. dollars. The purpose is to earn anarbitrage profit via trading from the second to the third currency when the direct exchange between the two is not in alignment with the cross exchange rate.Most, but not all, currency transactions go through the dollar. Certain banks specialize in making a direct market between non-dollar currencies, pricing at a narrower bid-ask spread than the cross-rate spread. Nevertheless, the implied cross-rate bid-ask quotations impose a discipline on the non-dollar market makers. If their direct quotes are not consistent with the cross exchange rates, a triangular arbitrage profit is possible.PROBLEMS1. Using Exhibit 5.4, calculate a cross-rate matrix for the euro, Swiss franc, Japanese yen, and the British pound. Use the most current American term quotes to calculate the cross-rates so that the triangular matrix resulting is similar to the portion above the diagonal in Exhibit 5.6.Solution: The cross-rate formula we want to use is:S(j/k) = S($/k)/S($/j).The triangular matrix will contain 4 x (4 + 1)/2 = 10 elements.￥SF ￡$Euro 138.05 1.5481 .6873 1.3112 Japan (100) 1.1214 .4979 .9498 Switzerland .4440 .8470U.K 1.90772. Using Exhibit 5.4, calculate the one-, three-, and six-month forward cross-exchange rates between the Canadian dollar and the Swiss franc using the most current quotations. State the forward cross-rates in “Canadian” terms.Solution: The formulas we want to use are:F N(CD/SF) = F N($/SF)/F N($/CD)orF N(CD/SF) = F N(CD/$)/F N(SF/$).We will use the top formula that uses American term forward exchange rates.F1(CD/SF) = .8485/.8037 = 1.0557F3(CD/SF)= .8517/.8043 = 1.0589F6(CD/SF)= .8573/.8057 = 1.06403. Restate the following one-, three-, and six-month outright forward European term bid-ask quotes in forward points.Spot 1.3431-1.3436One-Month 1.3432-1.3442Three-Month 1.3448-1.3463Six-Month 1.3488-1.3508Solution:One-Month 01-06Three-Month 17-27Six-Month 57-724. Using the spot and outright forward quotes in problem 3, determine the corresponding bid-ask spreads in points. Solution:Spot 5One-Month 10Three-Month 15Six-Month 205. Using Exhibit 5.4, calculate the one-, three-, and six-month forward premium or discount for the Canadian dollar versus the U.S. dollar using American term quotations. For simplicity, assume each month has 30 days. What is the interpretation of your results?Solution: The formula we want to use is:f N,CD= [(F N($/CD) - S($/CD/$)/S($/CD)] x 360/Nf1,CD= [(.8037 - .8037)/.8037] x 360/30 = .0000f3,CD= [(.8043 - .8037)/.8037] x 360/90 = .0030f6,CD= [(.8057 - .8037)/.8037] x 360/180 = .0050The pattern of forward premiums indicates that the Canadian dollar is trading at an increasing premium versus the U.S. dollar. That is, it becomes more expensive (in both absolute and percentage terms) to buy a Canadian dollar forward for U.S. dollars the further into the future one contracts.6. Using Exhibit 5.4, calculate the one-, three-, and six-month forward premium or discount for the U.S. dollar versus the British pound using European term quotations. For simplicity, assume each month has 30 days. What is the interpretation of your results?Solution: The formula we want to use is:f N,$= [(F N (￡/$) - S(￡/$))/S(￡/$)] x 360/Nf1,$= [(.5251 - .5242)/.5242] x 360/30 = -.0023f3,$= [(.5268 - .5242)/.5242] x 360/90 = -.0198f6,$= [(.5290 - .5242)/.5242] x 360/180 = -.0183The pattern of forward premiums indicates that the British pound is trading at a discount versus the U.S. dollar. That is, it becomes more expensive to buy a U.S. dollar forward for British pounds (in absolute but not percentage terms) the further into the future one contracts.7. Given the following information, what are the NZD/SGD currency against currency bid-ask quotations?American Terms European TermsBank Quotations Bid Ask Bid AskNew Zealand dollar .7265 .7272 1.3751 1.3765Singapore dollar .6135 .6140 1.6287 1.6300Solution: Equation 5.12 from the text implies S b(NZD/SGD) = S b($/SGD) x S b(NZD/$) = .6135 x 1.3765 = .8445. The reciprocal, 1/S b(NZD/SGD)= S a(SGD/NZD)= 1.1841. Analogously, it is implied that S a(NZD/SGD) = S a($/SGD) x Sa(NZD/$) = .6140 x 1.3765 = .8452. The reciprocal, 1/S a(NZD/SGD) = S b(SGD/NZD)= 1.1832. Thus, the NZD/SGD bid-ask spread is NZD0.8445-NZD0.8452 and the SGD/NZD spread is SGD1.1832-SGD1.1841.8. Assume you are a trader with Deutsche Bank. From the quote screen on your computer terminal, you notice that Dresdner Bank is quoting €0.7627/$1.00 and Credit Suisse is offering SF1.1806/$1.00. You learn that UBS is making a direct market between the Swiss franc and the euro, with a current €/SF quote of .6395. Show how you can make a triangular arbitrage profit by trading at these prices. (Ignore bid-ask spreads for this problem.) Assume you have $5,000,000 with which to conduct the arbitrage. What happens if you initially sell dollars for Swiss francs? What €/SF price will eliminate triangular arbitrage?Solution: To make a triangular arbitrage profit the Deutsche Bank trader would sell $5,000,000 to Dresdner Bank at€0.7627/$1.00. This trade would yield €3,813,500= $5,000,000 x .7627. The Deutsche Bank trader would then sell the euros for Swiss francs to Union Bank of Switzerland at a price of €0.6395/SF1.00, yielding SF5,963,253 = €3,813,500/.6395. The Deutsche Bank trader will resell the Swiss francs to Credit Suisse for $5,051,036 = SF5,963,253/1.1806, yielding a triangular arbitrage profit of $51,036.If the Deutsche Bank trader initially sold $5,000,000 for Swiss francs, instead of euros, the trade would yield SF5,903,000 = $5,000,000 x 1.1806. The Swiss francs would in turn be traded for euros to UBS for €3,774,969= SF5,903,000 x .6395. The euros would be resold to Dresdner Bank for $4,949,481 = €3,774,969/.7627, or a loss of $50,519. Thus, it is necessary to conduct the triangular arbitrage in the correct order.The S(€/SF)cross exchange rate should be .7627/1.1806 = .6460. This is an equilibrium rate at which a triangular arbitrage profit will not exist. (The student can determine this for himself.) A profit results from the triangular arbitrage when dollars are first sold for euros because Swiss francs are purchased for euros at too low a rate in comparison to the equilibrium cross-rate, i.e., Swiss francs are purchased for only €0.6395/SF1.00 instead of the no-arbitrage rate of €0.6460/SF1.00. Similarly, when dollars are first sold for Swiss francs, an arbitrage loss results because Swiss francs are sold for euros at too low a rate, resulting in too few euros. That is, each Swiss franc is sold for €0.6395/SF1.00 instead of the higher no-arbitrage rate of€0.6460/SF1.00.9. The current spot exchange rate is $1.95/￡ and the three-month forward rate is $1.90/￡. Based on your analysis of the exchange rate, you are pretty confident that the spot exchange rate will be $1.92/￡ in three months. Assume that you would like to buy or sell ￡1,000,000.a. What actions do you need to take to speculate in the forward market? What is the expected dollar profit from speculation?b. What would be your speculative profit in dollar terms if the spot exchange rate actually turns out to be $1.86/￡. Solution:a. If you believe the spot exchange rate will be $1.92/￡ in three months, you should buy ￡1,000,000 forward for $1.90/￡. Your expected profit will be:$20,000 = ￡1,000,000 x ($1.92 -$1.90).b. If the spot exchange rate actually turns out to be $1.86/￡ in three months, your loss from the long position will be:-$40,000 = ￡1,000,000 x ($1.86 -$1.90).10. Omni Advisors, an international pension fund manager, plans to sell equities denominated in Swiss Francs (CHF) and purchase an equivalent amount of equities denominated in South African Rands (ZAR).Omni will realize net proceeds of 3 million CHF at the end of 30 days and wants to eliminate the risk that the ZAR will appreciate relative to the CHF during this 30-day period. The following exhibit shows current exchange rates between the ZAR, CHF, and the U.S. dollar (USD).Currency Exchange Ratesa.Describe the currency transaction that Omni should undertake to eliminate currency riskover the 30-day period.b.Calculate the following:The CHF/ZAR cross-currency rate Omni would use in valuing the Swiss equityportfolio.The current value of Omni’s Swiss equity portfolio in ZAR.The annualized forward premium or discount at which the ZAR is trading versus theCHF.CFA Guideline Answer:a.To eliminate the currency risk arising from the possibility that ZAR will appreciateagainst the CHF over the next 30-day period, Omni should sell 30-day forward CHFagainst 30-day forward ZAR delivery (sell 30-day forward CHF against USD and buy30-day forward ZAR against USD).b.The calculations are as follows:Using the currency cross rates of two forward foreign currencies and three currencies (CHF, ZAR, USD), the exchange would be as follows:--30 day forward CHF are sold for USD. Dollars are bought at the forward sellingprice of CHF1.5285 = $1 (done at ask side because going from currency into dollars)--30 day forward ZAR are purchased for USD. Dollars are simultaneously sold to purchase ZAR at the rate of 6.2538 = $1 (done at the bid side because going fromdollars into currency)--For every 1.5285 CHF held, 6.2538 ZAR are received; thus the cross currency rate is1.5285 CHF/6.2538 ZAR = 0.244411398.At the time of execution of the forward contracts, the v alue of the 3 million CHF equity portfolio would be 3,000,000 CHF/0.244411398 = 12,274,386.65 ZAR.To calculate the annualized premium or discount of the ZAR against the CHF requires comparison of the spot selling exchange rate to the forward selling price of CHF for ZAR.Spot rate = 1.5343 CHF/6.2681 ZAR = 0.24477912030 day forward ask rate 1.5285 CHF/6.2538 ZAR = 0.244411398The premium/discount formula is:[(forward rate – spot rate) / spot rate] x (360 / # day contract) =[(0.244411398 – 0.24477912) / 0.24477912] x (360 / 30) =-1.8027126 % = -1.80% discount ZAR to CHFMINI CASE: SHREWSBURY HERBAL PRODUCTS, LTD.Shrewsbury Herbal Products, located in central England close to the Welsh border, is an old-line producer of herbal teas, seasonings, and medicines. Its products are marketed all over the United Kingdom and in many parts of continental Europe as well.Shrewsbury Herbal generally invoices in British pound sterling when it sells to foreign customers in order to guard against adverse exchange rate changes. Nevertheless, it has just received an order from a large wholesaler in central France for ￡320,000 of its products, conditional upon delivery being made in three months’ time and the order invoiced in euros. Shrewsbury’s controller, Elton Peters, is concerned with whether the pound will appreciate versus the euro over the next three months, thus eliminating all or most of the profit when the euro receivable is paid. He thinks this is an unlikely possibility, but he decides to contact the firm’s banker for suggestions about hedging the exchange rate exposure.Mr. Peters learns from the banker that the current spot e xchange rate is €/￡ is €1.4537, thus the invoice amount should be €465,184. Mr. Peters also learns that the three-month forward rates for the pound and the euro versus the U.S. dollar are $1.8990/￡1.00 and $1.3154/€1.00, respectively. The banker offers to set up a forward hedge for selling the euro receivable for pound sterling based on the €/￡ forward cross-exchange rate implicit in the forward rates against the dollar.What would you do if you were Mr. Peters?Suggested Solution to Shrewsbury Herbal Products, Ltd.Note to Instructor: This elementary case provides an intuitive look at hedging exchange rate exposure. Students should not have difficulty with it even though hedging will not be formally discussed until Chapter 8. The case is consistent with the discussion that accompanies Exhibit 5.9 of the text. Professor of Finance, Banikanta Mishra, of Xavier Institute of Management – Bhubaneswar, India contributed to this solution.Suppose Shrewsbury sells at a twenty percent markup. Thus the cost to the firm of the ￡320,000 order is ￡256,000. Thus, the pound could appreciate to €465,184/￡256,000 = €1.8171/1.00 before all profit was eliminated. This seems rather unlikely. Nevertheless, a ten percent appreciation of the pound (€1.4537 x 1.10) to €1.5991/￡1.00 would only yield a profit of ￡34,904 (= €465,184/1.5991 - ￡256,000). Shrewsbury can hedge the exposure by selling the euros forward for British pounds at F3(€/￡) = F3($/￡) ÷ F3($/€) = 1.8990 ÷ 1.3154 = 1.4437. At this forward exchange rate, Shrewsbury can “lock-in”a price of ￡322,217 (= €465,184/1.4437) for the sale. The forward exchange rate indicates that the euro is trading at a premium to the British pound in the forward market. Thus, the forward hedge allows Shrewsbury to lock-in a greater amount (￡2,217) than if the euro receivable was converted into pounds at the current spotIf the euro was trading at a forward discount, Shrewsbury would end up locking-in an amount less than ￡320,000. Whether that would lead to a loss for the company would depend upon the extent of the discount and the amount of profit built into the price of ￡320,000. Only if the forward exchange rate is even with the spot rate will Shrewsbury receive exactly ￡320,000. Obviously, Shrewsbury could ensure that it receives exactly ￡320,000 at the end of three-month accounts receivable period if it could invoice in ￡. That, however, is not acceptable to the French wholesaler. When invoicing in euros, Shrewsbury could establish the euro invoice amount by use of the forward exchange rate instead of the current spot rate. The invoice amount in that case would be €461,984 = ￡320,000 x 1.4437. Shrewsbury can now lock-in a receipt of ￡320,000 if it simultaneously hedges its euro exposure by selling €461,984 at the forward rate of 1.4437. That is, ￡320,000 =€461,984/1.4437.。
国际财务管理英文版第版马杜拉答案Chapter
Chapter 3International Financial Markets Lecture OutlineMotives for Using International Financial Markets Motives for Investing in Foreign MarketsMotives for Providing Credit in Foreign MarketsMotives for Borrowing in Foreign MarketsForeign Exchange MarketHistory of Foreign ExchangeForeign Exchange TransactionsExchange QuotationsForeignInterpretingCurrency Futures and Options MarketsInternational Money MarketOrigins and DevelopmentStandardizing Global Bank RegulationsInternational Credit MarketSyndicated LoansInternational Bond MarketEurobond MarketDevelopment of Other Bond MarketsComparing Interest Rates Among CurrenciesInternational Stock MarketsIssuance of Foreign Stock in the U.S.Issuance of Stock in Foreign MarketsComparison of International Financial MarketsHow Financial Markets Affect an MNC’s ValueChapter ThemeThis chapter identifies and discusses the various international financial markets used by MNCs. These markets facilitate day-to-day operations of MNCs, including foreign exchange transactions, investing in foreign markets, and borrowing in foreign markets.Topics to Stimulate Class Discussion1. Why do international financial markets exist?2. How do banks serve international financial markets?3. Which international financial markets are most important to a firm that consistently needsshort-term funds? What about a firm that needs long-term funds?Critical debateShould firms that go public engage in international offerings?Proposition Yes. When a firm issues shares to the public for the first time in an initial public offering (IPO), it is naturally concerned about whether it can place all of its shares at a reasonable price. It will be able to issue its shares at a higher price by attracting more investors. It will increase its demand by spreading the shares across countries. The higher the price at which it can issue shares, the lower is its cost of using equity capital. It can also establish a global name by spreading shares across countries.Opposing view No. If a firm spreads its shares across different countries at the time of the IPO, there will be less publicly traded shares in the home country. Thus, it will not have as much liquidity in the secondary market. Investors desire shares that they can easily sell in the secondary market, which means that they require that the shares have liquidity. To the extent that a firm reduces its liquidity in the home country by spreading its share across countries, it may not attract sufficient home demand for the shares. Thus, its efforts to create global name recognition may reduce its name recognition in the home country.With whom do you agree? State your reasons. Use InfoTrac or some other search engine to learn more about this issue. Which argument do you support? Offer your own opinion on this issue.ANSWER: The key is that students recognize the tradeoff involved. A firm that engages in a relatively small IPO will have limited liquidity even when all of the stock is issued in the home country. Thus, it should not consider issuing stock internationally. However, firms with larger stock offerings may be in a position to issue a portion of their shares outside the home country. They should not spread the stocks across several countries, but perhaps should target one or two countries where they conduct substantial business. They want to ensure sufficient liquidity in each of the foreign countries where they sell shares.Stock Markets are inefficientPropositionI cannot believe that if the value of the euro in terms of, say, the British pound increases three days in a row, on the fourth day there is still a 50:50 chance that it will go up or down in value. I think that most investors will see a trend and will buy, therefore the price is morelikely to go up. Also, if the forward market predicts a rise in value, on average, surely it is going to rise in value. In other words, currency prices are predictable. And finally, if it were so unpredictable and therefore unprofitable to the speculator, how is it that there is such a vast sum of money being traded every day for speculative purposes – there is no smoke without fire.The simple answer is that if that is what you believe, buy currencies that have viewOpposingincreased three days in a row and on average you should make a profit, buy currencies where the forward market shows an increase in value. The fact is that there are a lot of investors with just your sort of views. The market traders know all about such beliefs and will price the currency so that such easy profit (their loss) cannot be made. Look at past currency rates for yourself, check all fourth day changes after three days of rises, any difference is going to be not enough to cover transaction costs or trading expenses and the slight inaccuracy in your figures which are likely to be closing day mid point of the bid/ask spread. No, all currency movements are related to information and no-one knows if tomorrows news will be better or worse than expected.With whom do you agree? Could there be undiscovered patterns? Could some movements not be related to information? Could some private news be leaking out?ANSWER: Clearly there are no obvious patterns. Discussion on the impossibility of obvious patterns is worth emphasizing. However, does market inefficiency necessarily involve patterns, could market manipulation be occasional. There is worrying evidence from share price movements that there is unusual movement before announcements on many occasions, so the ideathat traders do not occasionally collude and move the price without supporting economic evidence is not an unreasonable view. Proof is however difficult as we have to separate anticipation from prior knowledge, the lucky speculator from the speculator who was in the know.Answers to End of Chapter Questions1. Motives for Investing in Foreign Money Markets. Explain why an MNC may invest fundsin a financial market outside its own country.ANSWER: The MNC may be able to earn a higher interest rate on funds invested in a financial market outside of its own country. In addition, the exchange rate of the currency involved may be expected to appreciate.2. Motives for Providing Credit in Foreign Markets. Explain why some financial institutionsprefer to provide credit in financial markets outside their own country.ANSWER: Financial institutions may believe that they can earn a higher return by providing credit in foreign financial markets if interest rate levels are higher and if the economic conditions are strong so that the risk of default on credit provided is low. The institutions may also want to diversity their credit so that they are not too exposed to the economic conditions in any single country.3. Exchange Rate Effects on Investing. Explain how the appreciation of the Australian dollaragainst the euro would affect the return to a French firm that invested in an Australian money market security.ANSWER: If the Australian dollar appreciates over the investment period, this implies that the French firm purchased the Australian dollars to make its investment at a lower exchange rate than the rate at which it will convert A$ to euros when the investment period is over.Thus, it benefits from the appreciation. Its return will be higher as a result of this appreciation.4. Exchange Rate Effects on Borrowing. Explain how the appreciation of the Japanese yenagainst the UK pound would affect the return to a UK firm that borrowed Japanese yen and used the proceeds for a UK project.ANSWER: If the Japanese yen appreciates over the borrowing period, this implies that the UK firm converted yen to pounds at a lower exchange rate than the rate at which it paid for yen at the time it would repay the loan. Thus, it is adversely affected by the appreciation. Its cost of borrowing will be higher as a result of this appreciation.5. Bank Services. List some of the important characteristics of bank foreign exchange servicesthat MNCs should consider.ANSWER: The important characteristics are (1) competitiveness of the quote, (2) the firm’s relationship with the bank, (3) speed of execution, (4) advice about current market conditions, and (5) forecasting advice.6. Bid/ask Spread. Delay Bank’s bid price for US dollars is £0.53 and its ask price is £0.55.What is the bid/ask percentage spread?ANSWER: (£0.55– £0.53)/£0.55 = .036 or 3.6%7. Bid/ask Spread. Compute the bid/ask percentage spread for Mexican peso in which the askrate is 20.6 New peso to the dollar and the bid rate is 21.5 New peso to the dollar.ANSWER: direct rates are 1/20.6 = $0.485:1 peso as the ask rate and 1/21.5 = $0.465:1 peso as the bid rate so the spread is[($0.485 – $0.465)/$0.485] = .041, or 4.1%. Note that the spread is fro the Mexiccan peso not the dollar.8. Forward Contract. The Wolfpack ltd is a UK exporter that invoices its exports to the UnitedStates in dollars. If it expects that the dollar will appreciate against the pound in the future, should it hedge its exports with a forward contract? Explain..ANSWER: The forward contract can hedge future receivables or payables in foreign currencies to insulate the firm against exchange rate risk. Yet, in this case, the Wolfpack Corporation should not hedge because it would benefit from appreciation of the dollar when it converts the dollars to pounds.9. Euro. Explain the foreign exchange situation for countries that use the euro when theyengage in international trade among themselves.ANSWER: There is no foreign exchange. Euros are used as the medium of exchange.10. Indirect Exchange Rate. If the direct exchange rate of the euro is worth £0.685, what is theindirect rate of the euro? That is, what is the value of a pound in euros?ANSWER: 1/0.685 = 1.46 euros.11. Cross Exchange Rate. Assume Poland’s currency (the zloty) is worth £0.17 and theJapanese yen is worth £0.005. What is the cross (implied) rate of the zloty with respect to yen?ANSWER: £0.17/£0.005 = 34 zloty:1 yen12. Syndicated Loans. Explain how syndicated loans are used in international markets.ANSWER: A large MNC may want to obtain a large loan that no single bank wants to accommodate by itself. Thus, a bank may create a syndicate whereby several other banks also participate in the loan.13. Loan Rates. Explain the process used by banks in the Eurocredit market to determine the rateto charge on loans.ANSWER: Banks set the loan rate based on the prevailing LIBOR, and allow the loan rate to float (change every 6 months) in accordance with changes in LIBOR.14. International Markets. What is the function of the international money market? Brieflydescribe the reasons for the development and growth of the European money market. Explain how the international money, credit, and bond markets differ from one another.ANSWER: The function of the international money market is to efficiently facilitate the flow of international funds from firms or governments with excess funds to those in need of funds.Growth of the European money market was largely due to (1) regulations in the U.S. that limited foreign lending by U.S. banks; and (2) regulated ceilings placed on interest rates of dollar deposits in the U.S. that encouraged deposits to be placed in the Eurocurrency market where ceilings were nonexistent.The international money market focuses on short-term deposits and loans, while the international credit market is used to tap medium-term loans, and the international bond market is used to obtain long-term funds (by issuing long-term bonds).15. Evolution of Floating Rates. Briefly describe the historical developments that led to floatingexchange rates as of 1973.ANSWER: Country governments had difficulty in maintaining fixed exchange rates. In 1971, the bands were widened. Yet, the difficulty of controlling exchange rates even within these wider bands continued. As of 1973, the bands were eliminated so that rates could respond to market forces without limits (although governments still did intervene periodically).16. International Diversification. Explain how the Asian crisis would have affected the returnsto a UK. firm investing in the Asian stock markets as a means of international diversification.[See the chapter appendix.]ANSWER: The returns to the UK firm would have been reduced substantially as a result of the Asian crisis because of both declines in the Asian stock markets and because of currency depreciation. For example, the Indonesian stock market declined by about 27% from June 1997 to June 1998. Furthermore, the Indonesian rupiah declined against the U.S. dollar by 84%.17.Eurocredit Loans.a.With regard to Eurocredit loans, who are the borrowers?b. Why would a bank desire to participate in syndicated Eurocredit loans?c. What is LIBOR and how is it used in the Eurocredit market?ANSWER:a. Large corporations and some government agencies commonly request Eurocredit loans.b. With a Eurocredit loan, no single bank would be totally exposed to the risk that theborrower may fail to repay the loan. The risk is spread among all lending banks within the syndicate.c. LIBOR (London interbank offer rate) is the rate of interest at which banks in Europe lendto each other. It is used as a base from which loan rates on other loans are determined in the Eurocredit market.18. Foreign Exchange. You just came back from Canada, where the Canadian dollar was worth£0.43. You still have C$200 from your trip and could exchange them for pounds at the airport, but the airport foreign exchange desk will only buy them for £0.40. Next week, you will be going to Mexico and will need pesos. The airport foreign exchange desk will sell you pesos for £0.055 per peso. You met a tourist at the airport who is from Mexico and is on his way to Canada. He is willing to buy your C$200 for 1500 New Pesos. Should you accept the offer or cash the Canadian dollars in at the airport? Explain.ANSWER: Exchange with the tourist. If you exchange the C$ for pesos at the foreign exchange desk, the C$200 is multiplied by £0.40 and then divided by £0.055 ie a ratio of £0.40/0.055 = 7.27 pesos to the C$. The total pesos would be 200 x 7.27 = 1454 pesos, a little less than is being offered by the tourist.19. Foreign Stock Markets. Explain why firms may issue stock in foreign markets. Why mightMNCs issue more stock in Europe since the conversion to a single currency in 1999?ANSWER: Firms may issue stock in foreign markets when they are concerned that their home market may be unable to absorb the entire issue. In addition, these firms may have foreign currency inflows in the foreign country that can be used to pay dividends on foreign-issued stock. They may also desire to enhance their global image. Since the euro can be used in several countries, firms may need a large amount of euros if they are expanding across Europe.20. Stock Market Integration. Bullet plc a UK firm, is planning to issue new shares on theLondon Stock Exchange this month. The only decision still to be made is the specific day on which the shares will be issued. Why do you think Bullet monitors results of the Tokyo stock market every morning?ANSWER: The UK stock market prices sometimes follow Japanese market prices. Thus, the firm would possibly be able to issue its stock at a higher price in the UK if it can use the Japanese market as an indicator of what will happen in the UK market. However, this indicator will not always be accurate.Advanced Questions21. Effects of September 11. Why do you think the terrorist attack on the U.S. was expected tocause a decline in U.S. interest rates? Given the expectations for a potential decline in U.S.interest rates and stock prices, how were capital flows between the U.S. and other countries likely affected?ANSWER: The attack was expected to cause a weaker economy, which would result in lower U.S. interest rates. Given the lower interest rates, and the weak stock prices, the amount of funds invested by foreign investors in U.S. securities would be reduced.22. International Financial Markets. Carrefour the French Supermarket chain has established retail outlets worldwide. These outlets are massive and contain products purchased locally as well as imports. As Carrefour generates earnings beyond what it needs abroad, it may remit those earnings back to France. Carrefour is likely to build additional outlets especially in China.a. Explain how the Carrefour outlets in China would use the spot market in foreign exchange.ANSWER:The Carrefour stores in China need other currencies to buy products from other countries, and must convert the Chinese currency (yuan) into the other currencies in the spot market to purchase these products. They also could use the spot market to convert excess earnings denominated in yuan into euros, which would be remitted to the French parent.b. Explain how Carrefour might utilize the international money markets when it isestablishing other Carrefour stores in Asia.ANSWER: Carrefour may need to maintain some deposits in the Eurocurrency market that can be used (when needed) to support the growth of Carrefour stores in various foreign markets. When some Carrefour stores in foreign markets need funds, they borrow from banks in the Eurocurrency market. Thus, the Eurocurrency market serves as a deposit or lending source for Carrefour and other MNCs on a short-term basis. (Eurocurrency refers to international currencies, most likely the dollar, not just the euro!)c. Explain how Carrefour could use the international bond market to finance theestablishment of new outlets in foreign markets.ANSWER: Carrefour could issue bonds in the Eurobond market to generate funds needed to establish new outlets. The bonds may be denominated in the currency that is needed; then, once the stores are established, some of the cash flows generated by those stores could be used to pay interest on the bonds.23.Interest Rates. Why do interest rates vary among countries? Why are interest rates normallysimilar for those European countries that use the euro as their currency? Offer a reason why the government interest rate of one country could be slightly higher than that of the government interest rate of another country, even though the euro is the currency used in both countries.ANSWER: Interest rates in each country are based on the supply of funds and demand for funds for a given currency. However, the supply and demand conditions for the euro are dictated by all participating countries in aggregate, and do not vary among participating countries. Yet, the government interest rate in one country that uses the euro could be slightly higher than others that use the euro if it is subject to default risk. The higher interest rate would reflect a risk premium.Blades plc Case Study。
国际财务管理 英文版答案1
Chapter 1Multinational Financial Management: An Overview Lecture OutlineManaging the MNCFacing Agency ProblemsManagement Structure of an MNCWhy Firms Pursue International BusinessTheory of Comparative AdvantageImperfect Markets TheoryProduct Cycle TheoryHow Firms Engage in International BusinessInternational TradeLicensingFranchisingJoint VenturesAcquisitions of Existing OperationsEstablishing New Foreign SubsidiariesSummary of MethodsValuation Model for an MNCDomestic ModelValuing International Cash FlowsUncertainty Surrounding an MNC’s Cash FlowsOrganization of the Text12 International Financial Management Chapter ThemeThis chapter introduces the multinational corporation as having similar goals to the purely domestic corporation, but a wider variety of opportunities. With additional opportunities come potential increased returns and other forms of risk to consider. The potential benefits and risks are introduced. Topics to Stimulate Class Discussion1. What is the appropriate definition of an MNC?2. Why does an MNC expand internationally?3. What are the risks of an MNC which expands internationally?4. Why do you think European countries attract U.S. firms?5. Why must purely domestic firms be concerned about the international environment?POINT/COUNTER-POINT:Should an MNC Reduce Its Ethical Standards to Compete Internationally?POINT: Yes. When a U.S.-based MNC competes in some countries, it may encounter some business norms there that are not allowed in the U.S. For example, when competing for a government contract, firms might provide payoffs to the government officials who will make the decision. Yet, in the United States, a firm will sometimes take a client on an expensive golf outing or provide skybox tickets to events. This is no different than a payoff. If the payoffs are bigger in some foreign countries, the MNC can compete only by matching the payoffs provided by its competitors.COUNTER-POINT: No. A U.S.-based MNC should maintain a standard code of ethics that applies to any country, even if it is at a disadvantage in a foreign country that allows activities that might be viewed as unethical. In this way, the MNC establishes more credibility worldwide.WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support? Offer your own opinion on this issue.ANSWER: The issue is frequently discussed. It is easy to suggest that the MNC should maintain a standard code of ethics, but in reality, that means that it will not be able to compete in some cases. For example, even if it submits the lowest bid on a specific foreign government project, it will not receive the bid without a payoff to the foreign government officials. The issue is especially a concern for large projects that may generate substantial cash flows for the firm that is chosen to do the project. Ideally, the MNC can clearly demonstrate to whoever oversees the decision process that it deserves to be selected. If there is just one decision-maker with no oversight, an MNC can not ensure that the decision will be ethical. But if the decision-maker must be accountable to a department who oversees the decision, the MNC may be able to prompt the department to ensure that the process is ethical.Chapter 1: Multinational Financial Management: An Overview 3 Answers to End of Chapter Questions1.Agency Problems of MNCs.a.Explain the agency problem of MNCs.ANSWER: The agency problem reflects a conflict of interests between decision-making managers and the owners of the MNC. Agency costs occur in an effort to assure that managers act in the best interest of the owners.b.Why might agency costs be larger for an MNC than for a purely domestic firm?ANSWER: The agency costs are normally larger for MNCs than purely domestic firms for the following reasons. First, MNCs incur larger agency costs in monitoring managers of distant foreign subsidiaries. Second, foreign subsidiary managers raised in different cultures may not follow uniform goals. Third, the sheer size of the larger MNCs would also create large agency problems.parative Advantage.a.Explain how the theory of comparative advantage relates to the need for internationalbusiness.ANSWER: The theory of comparative advantage implies that countries should specialize in production, thereby relying on other countries for some products. Consequently, there is a need for international business.b.Explain how the product cycle theory relates to the growth of an MNC.ANSWER: The product cycle theory suggests that at some point in time, the firm will attempt to capitalize on its perceived advantages in markets other than where it was initially established.3.Imperfect Markets.a.Explain how the existence of imperfect markets has led to the establishment of subsidiaries inforeign markets.ANSWER: Because of imperfect markets, resources cannot be easily and freely retrieved by the MNC. Consequently, the MNC must sometimes go to the resources rather than retrieve resources (such as land, labor, etc.).b.If perfect markets existed, would wages, prices, and interest rates among countries be moresimilar or less similar than under conditions of imperfect markets? Why?ANSWER: If perfect markets existed, resources would be more mobile and could therefore be transferred to those countries more willing to pay a high price for them. As this occurred, shortages of resources in any particular country would be alleviated and the costs of such resources would be similar across countries.4 International Financial Management4. International Opportunities.a.Do you think the acquisition of a foreign firm or licensing will result in greater growth for anMNC? Which alternative is likely to have more risk?ANSWER: An acquisition will typically result in greater growth, but it is more risky because it normally requires a larger investment and the decision can not be easily reversed once the acquisition is made.b. Describe a scenario in which the size of a corporation is not affected by access tointernational opportunities.ANSWER: Some firms may avoid opportunities because they lack knowledge about foreign markets or expect that the risks are excessive. Thus, the size of these firms is not affected by the opportunities.c. Explain why MNCs such as Coca Cola and PepsiCo, Inc., still have numerous opportunities forinternational expansion.ANSWER: Coca Cola and PepsiCo still have new international opportunities because countries are at various stages of development. Some countries have just recently opened their borders to MNCs. Many of these countries do not offer sufficient food or drink products to their consumers.5. International Opportunities Due to the Internet.a.What factors cause some firms to become more internationalized than others?ANSWER: The operating characteristics of the firm (what it produces or sells) and the risk perception of international business will influence the degree to which a firm becomes internationalized. Several other factors such as access to capital could also be relevant here. Firms that are labor-intensive could more easily capitalize on low-wage countries while firms that rely on technological advances could not.b.Offer your opinion on why the Internet may result in more international business.ANSWER: The Internet allows for easy and low-cost communication between countries, so that firms could now develop contacts with potential customers overseas by having a website. Many firms use their website to identify the products that they sell, along with the prices for each product. This allows them to easily advertise their products to potential importers anywhere in the world without mailing brochures to various countries. In addition, they can add to their product line and change prices by simply revising their website, so importers are kept abreast of the exporter’s product information by monitoring the exporter’s website periodically. Firms can also use their websites to accept orders online. Some firms with an international reputation use their brand name to advertise products over the internet. They may use manufacturers in some foreign countries to produce some of their products subject to their specification6. Impact of Exchange Rate Movements. Plak Co. of Chicago has several European subsidiariesthat remit earnings to it each year. Explain how appreciation of the euro (the currency used in many European countries) would affect Plak’s valuation.Chapter 1: Multinational Financial Management: An Overview 5 ANSWER: Plak’s valuation should increase because the appreciation of the euro will increase the dollar value of the cash flows remitted by the European subsidiaries.7. Benefits and Risks of International Business. As an overall review of this chapter, identifypossible reasons for growth in international business. Then, list the various disadvantages that may discourage international business.ANSWER: Growth in international business can be stimulated by (1) access to foreign resources which can reduce costs, or (2) access to foreign markets which boost revenues. Yet, international business is subject to risks of exchange rate fluctuations, and political risk (such as a possible host government takeover, tax regulations, etc.).8. Valuation of an MNC. Hudson Co., a U.S. firm, has a subsidiary in Mexico, where political riskhas recently increased. Hudson’s best guess of its future peso cash flows to be received has not changed. However, its valuation has declined as a result of the increase in political risk. Explain.ANSWER: The valuation of the MNC is the present value of expected cash flows. The increase in risk results in a higher expected return, which reduces the present value of the expected future cash flows.9. Centralization and Agency Costs. Would the agency problem be more pronounced for BerkleyCorp., which has its parent company make most major decisions for its foreign subsidiaries, or Oakland Corp., which uses a decentralized approach?ANSWER: The agency problem would be more pronounced for Oakland because of a higher probability that subsidiary decisions would conflict with the parent. Assuming that the parent attempts to maximize shareholder wealth, decisions by the parent should be compatible with shareholder objectives. If the subsidiaries made their own decisions, the agency costs would be higher since the parent would need to monitor the subsidiaries to assure that their decisions were intended to maximize shareholder wealth.10. Global Competition. Explain why more standardized product specifications across countries canincrease global competition.ANSWER: Standardized product specifications allow firms to more easily expand their business across other countries, which increases global competition.11. Exposure to Exhange Rates. McCanna Corp., a U.S. firm, has a French subsidiary that produceswine and exports to various European countries. All of the countries where it sells its wine use the euro as their currency, which is the same as the currency used in France. Is McCanna Corp.exposed to exchange rate risk?ANSWER: The subsidiary and its customers based in countries that now use the euro as their currency would no longer be exposed to exchange rate risk.12. Macro versus Micro Topics. Review the table of contents and indicate whether each of thechapters from Chapter 2 through Chapter 21 has a macro or micro perspective.6 International Financial ManagementANSWER: Chapters 2 through 8 are macro, while Chapters 9 through 21 are micro.13. Methods Used to Conduct International Business. Duve, Inc., desires to penetrate a foreignmarket with either a licensing agreement with a foreign firm or by acquiring a foreign firm.Explain the differences in potential risk and return between a licensing agreement with a foreign firm, and the acquisition of a foreign firm.ANSWER: A licensing agreement has limited potential for return, because the foreign firm will receive much of the benefits as a result of the licensing agreement. Yet, the MNC has limited risk, because it did not need to invest substantial funds in the foreign country.An acquisition by the MNC requires a substantial investment. If this investment is not a success, the MNC may have trouble selling the firm it acquired for a reasonable price. Thus, there is more risk. However, if this investment is successful, all of the benefits accrue to the MNC.14. International Business Methods. Snyder Golf Co., a U.S. firm that sells high-quality golf clubsin the U.S., wants to expand internationally by selling the same golf clubs in Brazil.a.Describe the tradeoffs that are involved for each method (such as exporting, direct foreigninvestment, etc.) that Snyder could use to achieve its goal.ANSWER: Snyder can export the clubs, but the transportation expenses may be high. If could establish a subsidiary in Brazil to produce and sell the clubs, but this may require a large investment of funds. It could use licensing, in which it specifies to a Brazilian firm how to produce the clubs. In this way, it does not have to establish its own subsidiary there.b. Which method would you recommend for this firm? Justify your recommendation.ANSWER: If the amount of golf clubs to be sold in Brazil is small, it may decide to export.However, if the expected sales level is high, it may benefit from licensing. If it is confident that the expected sales level will remain high, it may be willing to establish a subsidiary. The wages are lower in Brazil, and the large investment needed to establish a subsidiary may be worthwhile.15. Impact of Political Risk. Explain why political risk may discourage international business.ANSWER: Political risk increases the rate of return required to invest in foreign projects. Some foreign projects would have been feasible if there was no political risk, but will not be feasible because of political risk.16. Impact of September 11. Following the terrorist attack on the U.S., the valuations of manyMNCs declined by more than 10 percent. Explain why the expected cash flows of MNCs were reduced, even if they were not directly hit by the terrorist attacks.ANSWER: An MNC’s cash flows could be reduced in the following ways. First, a decline in travel would affect any MNCs that have business in travel-related industries. The airline, hotel, and tourist-related industries were expected to experience a decline in business. Layoffs were announced immediately by many of these MNCs. Second, these effects on travel-related industries can carry over to other industries, and weaken economies. Third, the cost of international tradeChapter 1: Multinational Financial Management: An Overview7 increased as a result of tighter restrictions on some products. Fourth, some MNCs incurred expenses as a result of increasing security to protect their employees.Advanced Questions17. International Joint Venture. Anheuser-Busch, the producer of Budweiser and other beers, hasrecently expanded into Japan by engaging in a joint venture with Kirin Brewery, the largest brewery in Japan. The joint venture enables Anheuser-Busch to have its beer distributed through Kirin’s distribution channels in Japan. In addition, it can utilize Kirin’s facilities to produce beer that will be sold locally. In return, Anheuser-Busch provides information about the American beer market to Kirin.a. Explain how the joint venture can enable Anheuser-Busch to achieve its objective ofmaximizing shareholder wealth.ANSWER: The joint venture creates a way for Anheuser-Busch to distribute Budweiser throughout Japan. It enables Anheuser-Busch to penetrate the Japanese market without requiring a substantial investment in Japan.b. Explain how the joint venture can limit the risk of the international business.ANSWER: The joint venture has limited risk because Anheuser-Busch does not need to establish its own distribution network in Japan. Thus, Anheuser-Busch may be able to use a smaller investment for the international business, and there is a higher probability that the international business will be successful.c. Many international joint ventures are intended to circumvent barriers that normally preventforeign competition. What barrier in Japan is Anheuser-Busch circumventing as a result of the joint venture? What barrier in the United States is Kirin circumventing as a result of the joint venture?ANSWER: Anheuser-Busch is able to benefit from Kirin’s distribution system in Japan, which would not normally be so accessible. Kirin is able to learn more about how Anheuser-Busch expanded its product across numerous countries, and therefore breaks through an “information”barrier.d. Explain how Anheuser-Busch could lose some of its market share in countries outside Japanas a result of this particular joint venture.ANSWER: Anheuser-Busch could lose some of its market share to Kirin as a result of explaining its worldwide expansion strategies to Kirin. However, it appears that Anheuser-Busch expects the potential benefits of the joint venture to outweigh any potential adverse effects.18. Impact of Eastern European Growth. The managers of Loyola Corp. recently had a meeting todiscuss new opportunities in Europe as a result of the recent integration among Eastern European countries. They decided not to penetrate new markets because of their present focus on expanding market share in the United States. Loyola’s financial managers have developed forecasts for earnings based on the 12 percent market share (defined here as its percentage of total European8 International Financial Managementsales) that Loyola currently has in Eastern Europe. Is 12 percent an appropriate estimate for next year’s Eastern European market share? If not, does it likely overestimate or underestimate the actual Eastern European market share next year?ANSWER: It would likely overestimate its market share because the competition should increase as competitors penetrate the European countries.19. Valuation of an MNC. Birm Co., based in Alabama, considers several international opportunitiesin Europe that could affect the value of its firm. The valuation of its firm is dependent on four factors: (1) expected cash flows in dollars, (2) expected cash flows in euros that are ultimately converted into dollars, (3) the rate at which it can convert euros to dollars, and (4) Birm’s weighted average cost of capital. For each opportunity, identify the factors that would be affected.a.Birm plans a licensing deal in which it will sell technology to a firm in Germany for$3,000,000; the payment is invoiced in dollars, and this project has the same risk level as its existing businesses.b.Birm plans to acquire a large firm in Portugal that is riskier than its existing businesses.c.Birm plans to discontinue its relationship with a U.S. supplier so that can import a smallamount of supplies (denominated in euros) at a lower cost from a Belgian supplier.d.Birm plans to export a small amount of materials to Ireland that are denominated in euros.ANSWER:Opportunity Dollar CF Euro CF Exchange rate atwhich Birm Co.converts euros todollarsBirmingham’sweighted average costof capitala.joint venture Xb.acquisition X Xc.importedsuppliesXd.exports toIrelandX20. Assessing Motives for International Business.Fort Worth Inc. specializes in manufacturingsome basic parts for sports utility vehicles that are produced and sold in the U.S. Its main advantage in the U.S. is that its production is efficient, and less costly than that of some other unionized manufacturers. It has a substantial market share in the U.S. Its manufacturing process is labor-intensive. It pays relatively low wages compared to U.S. competitors, but has guaranteed the local workers that their job positions will not be eliminated for the next 30 years. It hired a consultant to determine whether it should set up a subsidiary in Mexico, where the parts would be produced. The consultant suggested that Forth Worth should expand for the following reasons.Offer your opinion on whether the consultant’s reasons are logical:a. Theory of Competitive Advantage: There are not many SUVs sold in Mexico, so Fort WorthInc. would not have to face much competition there.Chapter 1: Multinational Financial Management: An Overview9b. Imperfect Markets Theory: Fort Worth Inc. can not easily transfer workers to Mexico, but itcan establish a subsidiary there in order to penetrate a new market.c. Product Cycle Theory: Fort Worth Inc. has been successful in the U.S. It has limited growthopportunities because it already controls much of the U.S. market for the parts it produces.Thus, the natural next step is to conduct the same business in a foreign country.d. Exchange Rate Risk. The exchange rate of the peso has weakened recently, so this wouldallow Fort Worth Inc. to build a plant at a very low cost (by exchanging dollars for the cheap pesos to build the plant).e. Political Risk. The political conditions in Mexico have stabilized in the last few months, soFort Worth should attempt to penetrate the Mexican market now.ANSWER: None of the arguments by the consultant are logical. If SUVs are not sold in the Mexican market, there is no need for these parts in Mexico. Fort Worth Inc. should only attempt to penetrate a new market if there is demand. Just because it has limited growth potential in the U.S., this does not mean that there will be demand for its product in Mexico. Even if the exchange rate is low relative to recent periods, it could decline further, which would adversely affect any the dollar amount of future remitted earnings. Stable political conditions in Mexico are not a sufficient reason to pursue direct foreign investment there.21. Valuation of Wal-Mart’s International Business. In addition to all of its stores in the U.S., Wal-Mart has 11 stores in Argentina, 24 stores in Brazil, 214 stores in Canada, 29 stores in China, 92 stores in Germany, 15 stores in South Korea, 611 stores in Mexico, and 261 stores in the U.K.Consider the value of Wal-Mart as being composed of two parts, a U.S. part (due to business in the U.S.) and a non-U.S. part (due to business in other countries). Explain how to determine the present value (in dollars) of the non-U.S. part assuming that you had access to all the details of Wal-Mart businesses outside the U.S.ANSWER: The non-U.S. part can be measured as the present value of future dollar cash flows resulting from the non-U.S. businesses. Based on recent earnings data for each store and applying an expected growth rate, you can estimate the remitted earnings that will come from each country in each year in the future. You can convert those cash flows to dollars using a forecasted exchange rate per year. Determine the present value of cash flows of all stores within one country. Then repeat the process for other countries. Then add up all the present values that you estimated to derive a consolidated present value of all non-U.S. subsidiaries.22. Impact of International Business on Cash Flows and Risk. Nantucket Travel Agencyspecializes in tours for American tourists. Until recently, all of its business was in the U.S. It just established a subsidiary in Athens, Greece, which provides tour services in the Greek islands for American tourists. It rented a shop near the port of Athens. It also hired residents of Athens, who could speak English and provide tours of the Greek islands. The subsidiary’s main costs are rent and salaries for its employees and the lease of a few large boats in Athens that it uses for tours.American tourists pay for the entire tour in dollars at Nantucket’s main U.S. office before they depart for Greece.10 International Financial Managementa.Explain why Nantucket may be able to effectively capitalize on international opportunitiessuch as the Greek island tours.ANSWER: It already has established credibility with American tourists, but could penetrate a new market with some of the same customers that it has served on tours in the U.S.b.Nantucket is privately-owned by owners who reside in the U.S. and work in the main office.Explain possible agency problems associated with the creation of a subsidiary in Athens, Greece. How can Nantucket attempt to reduce these agency costs?ANSWER: The employees of the subsidiary in Athens are not owners, and may have no incentive to manage in a manner that maximizes the wealth of the owners. Thus, they may manage the tours inefficiently.Nantucket could attempt to allow the employees a portion of the ownership of the company so that they benefit more directly from good performance. Alternatively, Nantucket may consider having one of its owners transfer to Athens to oversee the subsidiary’s operations.c. Greece’s cost of labor and rent are relatively low. Explain why this information is relevant toNantucket’s decision to establish a tour business in Greece.ANSWER: The low cost of rent and labor will be beneficial to Nantucket, because it enables Nantucket to create the subsidiary at a low cost.d. Explain how the cash flow situation of the Greek tour business exposes Nantucket toexchange rate risk. Is Nantucket favorably or unfavorably affected when the euro (Greece’s currency) appreciates against the dollar? Explain.ANSWER: Nantucket’s tour business in Greece results in dollar cash inflows and euro cash outflows. It will be adversely affected by the appreciation of the euro because it will require more dollars to cover the costs in Athens if the euro’s value rises.e. Nantucket plans to finance its Greek tour business. Its subsidiary could obtain loans in eurosfrom a bank in Greece to cover its rent, and its main office could pay off the loans over time.Alternatively, its main office could borrow dollars and would periodically convert dollars to euros to pay the expenses in Greece. Does either type of loan reduce the exposure of Nantucket to exchange rate risk? Explain.ANSWER: No. The euro loans would be used to cover euro expenses, but Nantucket would need dollars to pay off the loans. Alternatively, the U.S. dollar loans would still require conversion of dollars to euros. With either type of loan, Nantucket is still adversely affected by the appreciation of the euro against the dollar.f. Explain how the Greek island tour business could expose Nantucket to country risk.ANSWER: The subsidiary could be subject to government restrictions or taxes in Greece that would place it at a disadvantage relative to other Greek tour companies based in Athens.23. Valuation of an MNC. Yahoo! has expanded its business by establishing portals in numerouscountries, including Argentina, Australia, China, Germany, Ireland, Japan, and the U.K. It has cash outflows associated with the creation and administration of each portal. It also generates cash inflows from selling advertising space on its website. Each portal results in cash flows in a different currency. Thus, the valuation of Yahoo! is based on its expected future net cash flows in Argentine pesos after converting them into U.S. dollars, its expected net cash flows in Australian dollars after converting them into U.S. dollars, and so on. Explain how and why the valuation of Yahoo! would change if most investors suddenly expected that that the dollar would weaken against most currencies over time.ANSWER: The valuation of Yahoo! should increase because the present value of expected dollar cash flows to be received would increase.24.Uncertainty Surrounding an MNC’s Valuation. Carlisle Co. is a U.S. firm that is about topurchase a large company in Switzerland at a purchase price of $20 million. This company produces furniture and sells it locally (in Switzerland), and it is expected to earn large profits every year. The company will become a subsidiary of Carlisle and will periodically remit its excess cash flows due to its profits to Carlisle Co. Assume that Carlisle Co. has no other international business. Carlisle has $10 million that it will use to pay for part of the Swiss company and will finance the rest of its purchase with borrowed dollars. Carlisle Co. can obtain supplies from either a U.S. supplier or a Swiss supplier (in which case the payment would be made in Swiss francs). Both suppliers are very reputable and there would be no exposure to country risk when using either supplier. Is the valuation of the total cash flows of Carlisle Co.more uncertain if it obtains its supplies from a U.S. firm or a Swiss firm? Explain briefly.ANSWER: The valuation of Carlisle Co. is more uncertain if it uses a U.S. supplier because it will have a larger amount of cash flows that will be remitted from Switzerland and converted into dollars. If it obtains supplies from Switzerland, it can use a portion of its Swiss franc cash flows to cover the cost, and will convert a smaller amount of francs into dollars on a periodic basis.Thus, it is less exposed when sourcing from Switzerland.Solution to Continuing Case Problem: Blades, Inc.1.What are the advantages Blades could gain from importing from and/or exporting to a foreigncountry such as Thailand?ANSWER: The advantages Blades, Inc. could gain from importing from Thailand include potentially lowering Blades’cost of goods sold. If the inputs (rubber and plastic) are cheaper when imported from a foreign country such as Thailand, this would increase Blades’ net income.Since numerous competitors of Blades are already importing components from Thailand, importing would increase Blades’competitiveness in the U.S., especially since its prices are among the highest in the roller blade industry. Furthermore, since Blades is considering longer range plans in Thailand, importing from and exporting to Thailand may present it with an opportunity to establish initial relationships with some Thai suppliers. As far as exporting is concerned, Blades, Inc. could be one of the first firms to sell roller blades in Thailand.Considering that Blades is contemplating to eventually shift its sales to Thailand, this could be a major competitive advantage.。
国际财务管理-英文版答案答案翻译
章1跨国财务管理: 概述讲座大纲管理跨国公司面临代理问题跨国公司的治理结构为什么选择冷杉m它追求国际商务比较优势理论不完善的市场理论产品周期理论企业如何从事国际业务国际贸易发牌特许经营合资收购现有业务建立新的外国子公司方法摘要跨国公司的估值模型国内车型评估国际现金流跨国公司周围的不确定性’s 现金流案文的组织12 国际财务管理章节主题本章介绍跨国公司具有与纯粹的国内公司相似的目标, 但机会种类繁多。
随着更多的机会的出现, 潜在的回报增加, 并需要考虑其他形式的风险。
介绍了潜在的好处和风险。
鼓励课堂讨论的主题(一) 跨国公司的适当定义是什么？2。
为什么跨国公司会在国际上扩张？(三) 有什么问题吗？跨国公司在国际上扩张的风险是什么？4. 我的工作是什么？你认为欧洲国家为什么会吸引U.S.公司？5。
为什么纯粹的国内企业必须关注国际环境？点:跨国公司是否应该降低其道德标准, 以在国际上竞争？点: 是的。
当一家总部设在美国的跨国公司在一些国家竞争时, 它可能会遇到一些在那里不允许的商业规范。
U.S.例如, 在竞争政府合同时, 企业可能会向将作出决定的政府官员提供回报。
然而, 在United States, 一家公司有时会带客户进行昂贵的高尔夫出游, 或提供比赛门票。
这和回报没有什么不同。
如果一些国家的回报更大, 跨国公司只有通过匹配竞争对手提供的回报才能竞争。
点: 不可以. 总部设在美国的跨国公司应保持适用于任何国家的标准道德守则, 即使它在外国处于不利地位, 允许可能被视为不道德的活动。
通过这种方式, 跨国公司在全球范围内建立了更高的信誉。
谁是正确的？使用互联网以了解有关此问题的更多信息。
你支持哪种论点？在这个问题上提出自己的看法。
回答: 这个问题经常被讨论。
很容易建议跨国公司应保持标准的道德守则, 但实际上, 这意味着它在某些情况下无法竞争。
例如, 即使它提交了特定外国政府项目的最低出价, 如果没有向外国政府官员支付报酬, 它也不会收到投标。
国际财务管理（英文版）课后习题答案7
国际财务管理（英⽂版）课后习题答案7CHAPTER 6 INTERNATIONAL PARITY RELATIONSHIPSSUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Give a full definition of arbitrage.Answer:Arbitrage can be defined as the act of simultaneously buying and selling the same or equivalent assets or commodities for the purpose of making certain, guaranteed profits.2. Discuss the implications of the interest rate parity for the exchange rate determination.Answer: Assuming that the forward exchange rate is roughly an unbiased predictor of the future spot rate, IRP can be written as:S = [(1 + I￡)/(1 + I$)]E[S t+1 I t].The exchange rate is thus determined by the relative interest rates, and the expected future spot rate, conditional on all the available information, I t, as of the present time. One thus can say that expectation is self-fulfilling. Since the information set will be continuously updated as news hit the market, the exchange rate will exhibit a highly dynamic, random behavior.3. Explain the conditions under which the forward exchange rate will be an unbiased predictor of the future spot exchange rate.Answer: The forward exchange rate will be an unbiased predictor of the future spot rate if (I) the risk premium is insignificant and (ii) foreign exchange markets are informationally efficient.4. Explain the purchasing power parity, both the absolute and relative versions. What causes the deviations from the purchasing power parity?Answer: The absolute version of purchasing power parity (PPP):S = P$/P￡.The relative version is:e = π$ - π￡.PPP can be violated if there are barriers to international trade or if people in different countries have different consumption taste. PPP is the law of one price applied to a standard consumption basket.5. Discuss the implications of the deviations from the purchasing power parity for countries’ competitive positions in the world market.Answer: If exchange rate changes satisfy PPP, competitive positions of countries will remain unaffected following exchange rate changes. Otherwise, exchange rate changes will affect relative competitiveness of countries. If a country’s currency appreciates (depreciates) by more than is warranted by PPP, that will hurt (strengthen) the country’s competitive position in the world market.6. Explain and derive the international Fisher effect.Answer: The international Fisher effect can be obtained by combining the Fisher effect and the relative version of PPP in its expectational form. Specifically, the Fisher effect holds thatE(π$) = I$ - ρ$,E(π￡) = I￡ - ρ￡.Assuming that the real interest rate is the same between the two countries, i.e., ρ$ = ρ￡, and substituting the above results into the PPP, i.e., E(e) = E(π$)- E(π￡), we obtain the international Fisher effect: E(e) = I$ - I￡.7. Researchers found that it is very difficult to forecast the future exchange rates more accurately than the forward exchangerate or the current spot exchange rate. How would you interpret this finding?Answer: This implies that exchange markets are informationally efficient. Thus, unless one has private information that is not yet reflected in the current market rates, it would be difficult to beat the market.8. Explain the random walk model for exchange rate forecasting. Can it be consistent with the technical analysis?Answer: The random walk model predicts that the current exchange rate will be the best predictor of the future exchange rate. An implication of the model is that past history of the exchange rate is of no value in predicting future exchange rate. The model thus is inconsistent with the technical analysis which tries to utilize past history in predicting the future exchange rate.*9. Derive and explain the monetary approach to exchange rate determination.Answer: The monetary approach is associated with the Chicago School of Economics. It is based on two tenets: purchasing power parity and the quantity theory of money. Combing these two theories allows for stating, say, the $/￡ spot exchange rate as:S($/￡) = (M$/M￡)(V$/V￡)(y￡/y$),where M denotes the money supply, V the velocity of money, and y the national aggregate output. The theory holds that what matters in exchange rate determination are:1. The relative money supply,2. The relative velocities of monies, and3. The relative national outputs.10. CFA question: 1997, Level 3.A.Explain the following three concepts of purchasing power parity (PPP):a. The law of one price.b. Absolute PPP.c. Relative PPP.B.Evaluate the usefulness of relative PPP in predicting movements in foreign exchange rates on:a.Short-term basis (for example, three months)b.Long-term basis (for example, six years)Answer:A. a. The law of one price (LOP) refers to the international arbitrage condition for the standardconsumption basket. LOP requires that the consumption basket should be selling for the same price ina given currency across countries.A. b. Absolute PPP holds that the price level in a country is equal to the price level in another countrytimes the exchange rate between the two countries.A. c. Relative PPP holds that the rate of exchange rate change between a pair of countries is aboutequalto the difference in inflation rates of the two countries.B. a. PPP is not useful for predicting exchange rates on the short-term basis mainly becauseinternational commodity arbitrage is a time-consuming process.B. b. PPP is useful for predicting exchange rates on the long-term basis.PROBLEMS1. Suppose that the treasurer of IBM has an extra cash reserve of $100,000,000 to invest for six months. The six-month interest rate is 8 percent per annum in the United States and 6 percent per annum in Germany. Currently, the spot exchange rate is €1.01 per dollar and the six-month forward exchange rate is €0.99 per dollar. The treasurer of IBM does not wish to bear any exchange risk. Where should he/she invest to maximize the return?The market conditions are summarized as follows:I$ = 4%; i€= 3.5%; S = €1.01/$; F = €0.99/$.If $100,000,000 is invested in the U.S., the maturity value in six months will be$104,000,000 = $100,000,000 (1 + .04).Alternatively, $100,000,000 can be converted into euros and invested at the German interest rate, with the euro maturity value sold forward. In this case the dollar maturity value will be$105,590,909 = ($100,000,000 x 1.01)(1 + .035)(1/0.99)Clearly, it is better to invest $100,000,000 in Germany with exchange risk hedging.2. While you were visiting London, you purchased a Jaguar for ￡35,000, payable in three months. You have enough cash at your bank in New York City, which pays 0.35% interest per month, compounding monthly, to pay for the car. Currently, the spot exchange rate is $1.45/￡and the three-month forward exchange rate is $1.40/￡. In London, the money market interest rate is 2.0% for a three-month investment. There are two alternative ways of paying for your Jaguar.(a) Keep the funds at your bank in the U.S. and buy ￡35,000 forward.(b) Buy a certain pound amount spot today and invest the amount in the U.K. for three months so that the maturity value becomes equal to ￡35,000.Evaluate each payment method. Which method would you prefer? Why?Solution: The problem situation is summarized as follows:A/P = ￡35,000 payable in three monthsi NY = 0.35%/month, compounding monthlyi LD = 2.0% for three monthsS = $1.45/￡; F = $1.40/￡.Option a:When you buy ￡35,000 forward, you will need $49,000 in three months to fulfill the forward contract. The present value of $49,000 is computed as follows:$49,000/(1.0035)3 = $48,489.Thus, the cost of Jaguar as of today is $48,489.Option b:The present value of ￡35,000 is ￡34,314 = ￡35,000/(1.02). To buy ￡34,314 today, it will cost $49,755 = 34,314x1.45. Thus the cost of Jaguar as of today is $49,755.You should definitely choose to use “option a”, and save $1,266, which is the difference between $49,755 and $48489.3. Currently, the spot exchange rate is $1.50/￡ and the three-month forward exchange rate is $1.52/￡. The three-month interest rate is 8.0% per annum in the U.S. and 5.8% per annum in the U.K. Assume that you can borrow as much as$1,500,000 or ￡1,000,000.a. Determine whether the interest rate parity is currently holding.b. If the IRP is not holding, how would you carry out covered interest arbitrage? Show all the steps and determine the arbitrage profit.c. Explain how the IRP will be restored as a result of covered arbitrage activities.Solution: Let’s summarize the given data first:S = $1.5/￡; F = $1.52/￡; I$ = 2.0%; I￡ = 1.45%Credit = $1,500,000 or ￡1,000,000.a. (1+I$) = 1.02(1+I￡)(F/S) = (1.0145)(1.52/1.50) = 1.0280Thus, IRP is not holding exactly.b. (1) Borrow $1,500,000; repayment will be $1,530,000.(2) Buy ￡1,000,000 spot using $1,500,000.(3) Invest ￡1,000,000 at the pound interest rate of 1.45%;maturity value will be ￡1,014,500.(4) Sell ￡1,014,500 forward for $1,542,040Arbitrage profit will be $12,040c. Following the arbitrage transactions described above,The dollar interest rate will rise;The pound interest rate will fall;The spot exchange rate will rise;The forward exchange rate will fall.These adjustments will continue until IRP holds.4. Suppose that the current spot exchange rate is €0.80/$ and the three-month forward exchange rate is €0.7813/$. The three-month interest rate is5.6 percent per annum in the United States and 5.40 percent per annum in France. Assume that you can borrow up to $1,000,000 or €800,000.a. Show how to realize a certain profit via covered interest arbitrage, assuming that you want to realize profit in terms of U.S. dollars. Also determine the size of your arbitrage profit.b. Assume that you want to realize profit in terms of euros. Show the covered arbitrage process and determine the arbitrage profit in euros.Solution:a.(1+ i $) = 1.014 < (F/S) (1+ i € ) = 1.053. Thus, one has to borrow dollars and invest in euros tomake arbitrage profit.1.Borrow $1,000,000 and repay $1,014,000 in three months.2.Sell $1,000,000 spot for €1,060,000.3.Invest €1,060,000 at the euro interest rate of 1.35 % for three months and receive€1,074,310 atmaturity.4.Sell €1,074,310 forward for $1,053,245.Arbitrage profit = $1,053,245 - $1,014,000 = $39,245.b.Follow the first three steps above. But the last step, involving exchange risk hedging, will be5.Buy $1,014,000 forward for €1,034,280.Arbitrage profit = €1,074,310 - €1,034,280 = €40,0305. In the issue of October 23, 1999, the Economist reports that the interest rate per annum is 5.93% in the United States and 70.0% in Turkey. Why do you think the interest rate is so high in Turkey? Based on the reported interest rates, how would you predict the change of the exchange rate between the U.S. dollarand the Turkish lira?Solution: A high Turkish interest rate must reflect a high expected inflation in Turkey. According to international Fisher effect (IFE), we haveE(e) = i$ - i Lira= 5.93% - 70.0% = -64.07%The Turkish lira thus is expected to depreciate against the U.S. dollar by about 64%.6. As of November 1, 1999, the exchange rate between the Brazilian real and U.S. dollar is R$1.95/$. The consensus forecast for the U.S. and Brazil inflation rates for the next 1-year period is 2.6% and 20.0%, respectively. How would you forecast the exchange rate to be at around November 1, 2000?Solution: Since the inflation rate is quite high in Brazil, we may use the purchasing power parity to forecast the exchange rate.E(e) = E(π$) - E(πR$)= 2.6% - 20.0%= -17.4%E(S T) = S o(1 + E(e))= (R$1.95/$) (1 + 0.174)= R$2.29/$7. (CFA question) Omni Advisors, an international pension fund manager, uses the concepts of purchasing power parity (PPP) and the International Fisher Effect (IFE) to forecast spot exchange rates. Omni gathers the financial information as follows:Base price level 100Current U.S. price level 105Current South African price level 111Base rand spot exchange rate $0.175Current rand spot exchange rate $0.158Expected annual U.S. inflation 7%Expected annual South African inflation 5%Expected U.S. one-year interest rate 10%Expected South African one-year interest rate 8%Calculate the following exchange rates (ZAR and USD refer to the South African and U.S. dollar, respectively).a. The current ZAR spot rate in USD that would have been forecast by PPP.b. Using the IFE, the expected ZAR spot rate in USD one year from now.c. Using PPP, the expected ZAR spot rate in USD four years from now.a. ZAR spot rate under PPP = [1.05/1.11](0.175) = $0.1655/rand.b. Expected ZAR spot rate = [1.10/1.08] (0.158) = $0.1609/rand.c. Expected ZAR under PPP = [(1.07)4/(1.05)4] (0.158) = $0.1704/rand.8. Suppose that the current spot exchange rate is €1.50/? and the one-year forward exchange rate is €1.60/?. The one-year interest rate is 5.4% in euros and 5.2% in pounds. You can borrow at most €1,000,000 or the equivalent pound amount, i.e., ? 666,667, at the current spot exchange rate.a.Show how you can realize a guaranteed profit from covered interest arbitrage. Assume that you are aeuro-based investor. Also determine the size of the arbitrage profit.b.Discuss how the interest rate parity may be restored as a result of the abovetransactions.c.Suppose you are a pound-based investor. Show the covered arbitrage process anddetermine the pound profit amount.Solution:a. First, note that (1+i €) = 1.054 is less than (F/S)(1+i €) = (1.60/1.50)(1.052) = 1.1221.You should thus borrow in euros and lend in pounds.1)Borrow €1,000,000 and promise to repay €1,054,000 in one year.2)Buy ?666,667 spot for €1,000,000.3)Invest ?666,667 at the pound interest rate of 5.2%; the maturity value will be ?701,334.4)To hedge exchange risk, sell the maturity value ?701,334 forward in exchange for €1,122,134.The arbitrage profit will be the difference between €1,122,134 and €1,054,000, i.e., €68,134.b. As a result of the above arbitrage transactions, the euro interest rate will rise, the poundinterest rate will fall. In addition, the spot exchange rate (euros per pound) will rise and the forward rate will fall. These adjustments will continue until the interest rate parity is restored.c. The pound-based investor will carry out the same transactions 1), 2), and 3) in a. But to hedge, he/she will buy €1,054,000 forward in exchange for ?658,750. The arbitrage profit will then be ?42,584 = ?701,334 - ?658,750.9. Due to the integrated nature of their capital markets, investors in both the U.S. and U.K. require the same real interest rate, 2.5%, on their lending. There is a consensus in capital markets that the annual inflation rate is likely to be 3.5% in the U.S. and 1.5% in the U.K. for the next three years. The spot exchange rate is currently $1.50/￡./doc/595318ce05087632311212e1.html pute the nominal interest rate per annum in both the U.S. and U.K., assuming that the Fishereffect holds.b.What is your expected future spot dollar-pound exchange rate in three years from now?c.Can you infer the forward dollar-pound exchange rate for one-year maturity?Solution.a. Nominal rate in US = (1+ρ) (1+E(π$)) – 1 = (1.025)(1.035) – 1 = 0.0609 or 6.09%.Nominal rate in UK= (1+ρ) (1+E(π?)) – 1 = (1.025)(1.015) – 1 = 0.0404 or 4.04%.b. E(S T) = [(1.0609)3/(1.0404)3] (1.50) = $1.5904/?.c. F = [1.0609/1.0404](1.50) = $1.5296/?.Mini Case: Turkish Lira and the Purchasing Power ParityVeritas Emerging Market Fund specializes in investing in emerging stock markets of the world. Mr. Henry Mobaus, an experienced hand in international investment and your boss, is currently interested in Turkish stock markets. He thinks that Turkey will eventually be invited to negotiate its membership in the European Union. If this happens, it will boost the stock prices in Turkey. But, at the same time, he is quite concerned with the volatile exchange rates of the Turkish currency. He would like to understand what drives the Turkish exchange rates. Since the inflation rate is much higher in Turkey than in the U.S., he thinks that the purchasing power parity may be holding at least to some extent. As a research assistant for him, you were assigned to check this out. In other words, you have to study and prepare a report on the following question: Does the purchasing power parity hold for the Turkish lira-U.S. dollar exchange rate? Among other things, Mr. Mobaus would like you to do the following:Plot the past exchange rate changes against the differential inflation rates betweenTurkey and the U.S. for the last four years.Regress the rate of exchange rate changes on the inflation rate differential to estimatethe intercept and the slope coefficient, and interpret the regression results.Data source: You may download the consumer price index data for the U.S. and Turkey from the following website:/doc/595318ce05087632311212e1.html /home/0,2987,en_2649_201185_1_1_1_1_1,00.html, “hot file”(Excel format) . You may download the exchange rate data from the website:/doc/595318ce05087632311212e1.html merce.ubc.ca/xr/data.html.Solution:a. In the current solution, we use the monthly data from January 1999 – December 2002.b. We regress exchange rate changes (e) on the inflation rate differential and estimate the intercept (α ) and slope coefficient (β):3.095) (t 1.472β?0.649)- (t 0.011αε Inf_US) -Inf_Turkey (β?αe t t ===-=++=The estimated intercept is insignificantly different from zero, whereas the slope coefficient is positive and significantly different from zero. In fact, the slope coefficient is insignificantly different from unity. [Note that t-statistics for β = 1 is 0.992 = (1.472 – 1)/0.476 where s.e. is 0.476] In other words, we cannot reject the hypothesis that the intercept is zero and the slope coefficient is one. The results are thus supportive of purchasing power parity.。
国际财务管理（英文版）课后习题答案（整合版）
CHAPTER 1 GLOBALIZATION AND THE MULTINATIONAL FIRM SUGGESTED ANSWERS TO END-OF-CHAPTER QUESTIONSQUESTIONS1. Why is it important to study international financial managementAnswer: We are now living in a world where all the major economic functions i.e. consumptionproduction and investment are highly globalized. It is thus essential for financial managers to fullyunderstand vital international dimensions of financial management. This global shift is in markedcontrast to a situation that existed when the authors of this book were learning finance some twenty yearsago.At that time most professors customarily and safely to some extent ignored international aspectsof finance. This mode of operation has become untenable since then.2. How is international financial management different from domestic financial managementAnswer: There are three major dimensions that set apart international finance from domestic finance.They are: 1. foreign exchange and political risks 2. market imperfections and 3. expanded opportunity set.3. Discuss the three major trends that have prevailed in international business during the last two decades.Answer: The 1980s brought a rapid integration of international capital and financial markets. Impetus forglobalized financial markets initially came from the governments of major countries that had begun toderegulate their foreign exchange and capital markets. The economic integration and globalization thatbegan in the eighties is picking up speed in the 1990s via privatization. Privatization is the process bywhich a country divests itself of the ownership and operation of a business venture by turning it over tothe free market system. Lastly trade liberalization and economic integration continued to proceed at boththe regional and global levels.4. How is a country‟s economic well-being enhanced through free international trade in goods andservicesAnswer: According to David Ricardo with free international trade it is mutually beneficial for twocountries to each specialize in the production of the goods that it can produce relatively most efficientlyand then trade those goods. By doing so the two countries can increase their combined productionwhich allows both countries to consume more of both goods. This argument remains valid even if acountry can produce both goods more efficiently than the other country. International trade is not a …zero-sum‟ game in which one country benefits at the expense of another country. Rather international tradecould be an …increasing-sum‟ game at which all players become winners.5. What considerations might limit the extent to which the theory of comparative advantage is realisticAnswer: The theory of comparative advantage was originally advanced by the nineteenth centuryeconomist David Ricardo as an explanation for why nations trade with one another. The theory claimsthat economic well-being is enhanced if each country‟s citizens produce what they have a comparativeadvantage in producing relative to the citizens of other countries and then trade products. Underlying thetheory are the assumptions of free trade between nations and that the factors of production landbuildings labor technology and capital are relatively immobile. To the extent that these assumptions donot hold the theory of comparative advantage will not realistically describe international trade.6. What are multinational corporations MNCs and what economic roles do they playAnswer: A multinational corporation MNC can be defined as a business firm incorporated in onecountry that has production and sales operations in several other countries. Indeed some MNCs haveoperations in dozens of different countries. MNCs obtain financing from major money centers around theworld in many different currencies to finance their operations. Global operations force the treasurer‟soffice to establish international banking relationships to place short-term fundsin several currencydenominations and to effectively manage foreign exchange risk.7. Mr. Ross Perot a former Presidential candidate of the Reform Party which is a third political party inthe United States had strongly objected to the creation of the North American Trade AgreementNAFTA which nonetheless was inaugurated in 1994 for the fear of losing American jobs to Mexicowhere it is much cheaper to hire workers. What are the merits and demerits of Mr. Perot‟s position onNAFTA Considering the recent economic developments in North America how would you assess Mr.Perot‟s position on NAFTAAnswer: Since the inception of NAFTA many American companies indeed have invested heavily inMexico sometimes relocating production from the United States to Mexico. Although this might havetemporarily caused unemployment of some American workers they were eventually rehired by otherindustries often for higher wages. Currently the unemployment rate in the U.S. is quite low by historicalstandard. At the same time Mexico has been experiencing a major economic boom. It seems clear thatboth Mexico and the U.S. have benefited from NAFTA. Mr. Perot‟s concern appears to hav e been illfounded.8. In 1995 a working group of French chief executive officers was set up by the Confederation of FrenchIndustry CNPF and the French Association of Private Companies AFEP to study the French corporategovernance structure. The group reported the following among other things “The board of directorsshould not simply aim at maximizing share values as in the U.K. and the U.S. Rather its goal should be toserve the company whose interests should be clearly distinguished from those of its shareholdersemployees creditors suppliers and clients but still equated with their general common interest which isto safeguard the prosperity and continuity of the company”. Evaluate the above recommendation of theworking group.Answer: The recommendations of the French working group clearly show that shareholder wealthmaximization is not a universally accepted goal of corporate management especially outside the UnitedStates and possibly a few other Anglo-Saxon countries including the United Kingdom and Canada. Tosome extent this may reflect the fact that share ownership is not wide spread in most other countries. InFrance about 15 of households own shares.9. Emphasizing the importance of voluntary compliance as opposed to enforcement in the aftermath ofcorporate scandals e.g. Enron and WorldCom U.S. President George W. Bush stated that while tougherlaws might help “ultimately the ethics of American business depends on the conscience of America‟sbusiness leaders.” Describe your view on this statement.Answer: There can be different answers to this question. If business leaders always behave with a highethical standard many of the corporate scandals we have seen lately might not have happened. Since wecannot fully depend on the ethical behavior on the part of business leaders the society should protectitself by adopting therules/regulations and governance structure that would induce business leaders tobehave in the interest of the society at large.10. Suppose you are interested in investing in shares of Nokia Corporation of Finland which is a worldleader in wireless communication. But before you make investment decision you would like to learnabout the company. Visit the website of CNN Financial network and collectinformation about Nokia including the recent stock price history and analysts‟ views of the company.Discuss what you learn about the company. Also discuss how the instantaneous access to information viainternet would affect the nature and workings of financial markets.Answer: As students might have learned from visiting the website information is readily available evenfor foreign companies like Nokia. Ready access to international information helpsintegrate financialmarkets dismantling barriers to international investment and financing. Integration however may help afinancial shock in one market to be transmitted to other markets.MINI CASE: NIKE‟S DECISION Nike a U.S.-based company with a globally recognized brand name manufactures athletic shoes insuch Asian developing countries as China Indonesia and Vietnam using subcontractors and sells theproducts in the U.S. and foreign markets. The company has no production facilities in the United States.In each of those Asian countries where Nike has production facilities the rates of unemployment andunderemployment are quite high. The wage rate is very low in those countries by the U.S. standardhourly wage rate in the manufacturing sector is less than one dollar in each of those countries which iscompared with about 18 in the U.S. In addition workers in those countries often are operating in poorand unhealthy environments and their rights are not well protected. Understandably Asian host countriesare eager to attract foreign investments like Nike‟s to develop their economies and raise the livingstandards of th eir citizens. Recently however Nike came under a world-wide criticism for its practice ofhiring workers for such a low pay “next to nothing” in the words of critics and condoning poor workingconditions in host countries. Evaluate and discuss various …ethical‟ as well as economic ramifications of Nike‟s decision toinvest in those Asian countries.Suggested Solution to Nike‟s Decision Obviously Nike‟s investments in such Asian countries as China Indonesia and Vietnam weremotivated to take advantage of low labor costs in those countries. While Nike was criticized for the poorworking conditions for its workers the company has recognized the problem and has substantiallyimproved the working environments recently. Although Nike‟s workers get paid very low wages by theWestern standard they probably are making substantially more than their local compatriots who are eitherunder- or unemployed. While Nike‟s detractors may have valid points one should not ignore the fact thatthe company is making contributions to the economic welfare of those Asian countries by creating jobopportunities. CHAPTER 1A THEORY OF COMPARATIVE ADVANTAGE SUGGESTED SOLUTIONS TO APPENDIX PROBLEMSPROBLEMS1. Country C can produce seven pounds of food or four yards of textiles per unit of input. Compute theopportunity cost of producing food instead of textiles. Similarly compute the opportunity cost ofproducing textiles instead of food.Solution: The opportunity cost of producing food instead of textiles is one yard of textiles per 7/4 1.75pounds of food. A pound of food has an opportunity cost of4/7 .57 yards of textiles.2. Consider the no-trade input/output situation presented in the following table for Countries X and Y.Assuming that free trade is allowed develop a scenario that will benefit the citizens of both countries.INPUT/OUTPUT WITHOUT TRADE_________________________________________________________________ ______ Country X YTotal___________________________________________________________________ _____I. Units of Input000000_____________________________________________________Food 70 60Textiles 4030______________________________________________________________________ __II. Output per Unit of Inputlbs or yards____________________________________________________Food 17 5Textiles 52_______________________________________________________________________ _III. Total Outputlbs or yards000000____________________________________________________Food 1190 300 1490Textiles 200 60260_____________________________________________________________________ ___IV. Consumptionlbs or yards000000___________________________________________________Food 1190 300 1490Textiles 200 60260_____________________________________________________________________ ___Solution: Examination of the no-trade input/output table indicates that Country X has an absoluteadvantage in the production of food and textiles. Country X can “trade off” one unit of productionneeded to produce 17 pounds of food for five yards of textiles. Thus a yard of textiles has an opportunitycost of 17/5 3.40 pounds of food or a pound of food has an opportunity cost of 5/17 .29 yards oftextiles. Analogously Country Y has an opportunity cost of 5/2 2.50 pounds of food per yard oftextiles or 2/5 .40 yards of textiles per pound of food. In terms of opportunity cost it is clear thatCountry X is relatively more efficient in producing food and Country Y is relatively more efficient inproducing textiles. Thus Country X Y has a comparative advantage in producing food textile iscomparison to Country Y X. When there are no restrictions or impediments to free trade the economic-well being of thecitizens of both countries is enhanced through trade. Suppose that Country X shifts 20000000 unitsfrom the production of textiles to the production of food where it has a comparative advantage and thatCountry Y shifts 60000000 units from the production of food to the production of textiles where it has acomparative advantage. Total output will now be 90000000 x 17 1530000000 pounds of food and20000000 x 5 100000000 90000000 x 2 180000000 280000000 yards of textiles.Further suppose that Country X and Country Y agree on a price of 3.00 pounds of food for one yard oftextiles and that Country X sells Country Y 330000000 pounds of food for 110000000 yards of textiles.Under free trade the following table shows that the citizens of Country X Y have increased theirconsumption of food by 10000000 30000000 pounds and textiles by 10000000 10000000 yards.INPUT/OUTPUT WITH FREE TRADE_________________________________________________________________ _________ Country X YTotal___________________________________________________________________ _______I. Units of Input 000000_______________________________________________________Food 90 0Textiles 2090______________________________________________________________________ ____II. Output per Unit of Input lbs or yards______________________________________________________Food 17 5Textiles 52_______________________________________________________________________ ___III. Total Output lbs or yards 000000_____________________________________________________Food 1530 0 1530Textiles 100 180280_____________________________________________________________________ _____IV. Consumption lbs or yards 000000_____________________________________________________Food 1200 330 1530Textiles 210 70280_____________________________________________________________________ _____ CHAPTER 3 BALANCE OF PAYMENTS SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMSQUESTIONS1. Define the balance of payments.Answer: The balance of payments BOP can be defined as the statistical record of a country‟sinternational transactions over a certain period of time presented in the form of double-entry bookkeeping.2. Why would it be useful.。
国际财务管理(英文版)课后习题答案1
CHAPTER 14 INTEREST RATE AND CURRENCY SWAPSSUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Describe the difference between a swap broker and a swap dealer.Answer: A swap broker arranges a swap between two counterparties for a fee without taking a risk position in the swap. A swap dealer is a market maker of swaps and assumes a risk position in matching opposite sides of a swap and in assuring that each counterparty fulfills its contractual obligation to the other.2. What is the necessary condition for a fixed-for-floating interest rate swap to be possible?Answer: For a fixed-for-floating interest rate swap to be possible it is necessary for a quality spread differential to exist. In general, the default-risk premium of the fixed-rate debt will be larger than the default-risk premium of the floating-rate debt.3. Discuss the basic motivations for a counterparty to enter into a currency swap.Answer: One basic reason for a counterparty to enter into a currency swap is to exploit the comparative advantage of the other in obtaining debt financing at a lower interest rate than could be obtained on its own. A second basic reason is to lock in long-term exchange rates in the repayment of debt service obligations denominated in a foreign currency.4. How does the theory of comparative advantage relate to the currency swap market?Answer: Name recognition is extremely important in the international bond market. Without it, even a creditworthy corporation will find itself paying a higher interest rate for foreign denominated funds than a local borrower of equivalent creditworthiness. Consequently, two firms of equivalent creditworthiness can each exploit their, respective, name recognition by borrowing in their local capital market at a favorable rate and then re-lending at the same rate to the other.5. Discuss the risks confronting an interest rate and currency swap dealer.Answer: An interest rate and currency swap dealer confronts many different types of risk. Interest rate risk refers to the risk of interest rates changing unfavorably before the swap dealer can lay off on an opposing counterparty the unplaced side of a swap with another counterparty. Basis risk refers to the floating rates of two counterparties being pegged to two different indices. In this situation, since the indexes are not perfectly positively correlated, the swap bank may not always receive enough floating rate funds from one counterparty to pass through to satisfy the other side, while still covering its desired spread, or avoiding a loss. Exchange-rate risk refers to the risk the swap bank faces from fluctuating exchange rates during the time it takes the bank to lay off a swap it undertakes on an opposing counterparty before exchange rates change. Additionally, the dealer confronts credit risk from one counterparty defaulting and its having to fulfill the defaulting party’s obligation to the other counterparty. Mismatch risk refers to the difficulty of the dealer finding an exact opposite match for a swap it has agreed to take. Sovereign risk refers to a country imposing exchange restrictions on a currency involved in a swap making it costly, or impossible, for a counterparty to honor its swap obligations to the dealer. In this event, provisions exist for the early termination of a swap, which means a loss of revenue to the swap bank.6. Briefly discuss some variants of the basic interest rate and currency swaps diagramed in the chapter.Answer: Instead of the basic fixed-for-floating interest rate swap, there are also zero-coupon-for-floating rate swaps where the fixed rate payer makes only one zero-coupon payment at maturity on the notional value. There are also floating-for-floating rate swaps where each side is tied to a different floating rate index or a different frequency of the same index. Currency swaps need not be fixed-for-fixed; fixed-for-floating and floating-for-floating rate currency swaps are frequently arranged. Moreover, both currency and interest rate swaps can be amortizing as well as non-amortizing.7. If the cost advantage of interest rate swaps would likely be arbitraged away in competitive markets, what other explanations exist to explain the rapid development of the interest rate swap market?Answer: All types of debt instruments are not always available to all borrowers. Interest rate swaps can assist in market completeness. That is, a borrower may use a swap to get out of one type of financing and to obtain a more desirable type of credit that is more suitable for its asset maturity structure.8. Suppose Morgan Guaranty, Ltd. is quoting swap rates as follows: 7.75 - 8.10 percent annually against six-month dollar LIBOR for dollars and 11.25 - 11.65 percent annually against six-month dollar LIBOR for British pound sterling. At what rates will Morgan Guaranty enter into a $/£ currency swap?Answer: Morgan Guaranty will pay annual fixed-rate dollar payments of 7.75 percent against receiving six-month dollar LIBOR flat, or it will receive fixed-rate annual dollar payments at 8.10 percent against paying six-month dollar LIBOR flat. Morgan Guaranty will make annual fixed-rate £ payments at 11.25 percent against receiving six-month dollar LIBOR flat, or it will receive annual fixed-rate £ payments at 11.65 percent against paying six-month dollar LIBOR flat. Thus, Morgan Guaranty will enter into a currency swap in which it would pay annual fixed-rate dollar payments of 7.75 percent in return for receiving semi-annual fixed-rate £ payments at 11.65 percent, or it will receive annual fixed-rate dollar payments at 8.10 percent against paying annual fixed-rate £ payments at 11.25 percent.*9. Assume a currency swap in which two counterparties of comparable credit risk each borrow at the best rate available, yet the nominal rate of one counterparty is higher than the other. After the initial principal exchange, is the counterparty that is required to make interest payments at the higher nominal rate at a financial disadvantage to the other in the swap agreement? Explain your thinking.Answer: Superficially, it may appear that the counterparty paying the higher nominal rate is at a disadvantage since it has borrowed at a lower rate. However, if the forward rate is an unbiased predictor of the expected spot rate and if IRP holds, then the currency with the higher nominal rate is expected to depreciate versus the other. In this case, the counterparty making the interest payments at the higher nominal rate is in effect making interest payments at the lower interest rate because the payment currency is depreciating in value versus the borrowing currency.PROBLEMS1. Alpha and Beta Companies can borrow for a five-year term at the following rates:Alpha BetaMoody’s credit rating Aa BaaFixed-rate borrowing cost 10.5% 12.0%Floating-rate borrowing cost LIBOR LIBOR + 1%a. Calculate the quality spread differential (QSD).b. Develop an interest rate swap in which both Alpha and Beta have an equal cost savings in their borrowing costs. Assume Alpha desires floating-rate debt and Beta desires fixed-rate debt. No swap bank is involved in this transaction.Solution:a. The QSD = (12.0% - 10.5%) minus (LIBOR + 1% - LIBOR) = .5%.b. Alpha needs to issue fixed-rate debt at 10.5% and Beta needs to issue floating rate-debt at LIBOR + 1%. Alpha needs to pay LIBOR to Beta. Beta needs to pay 10.75% to Alpha. If this is done, Alpha’s floating-rate all-in-cost is: 10.5% + LIBOR - 10.75% = LIBOR - .25%, a .25% savings over issuing floating-rat e debt on its own. Beta’s fixed-rate all-in-cost is: LIBOR+ 1% + 10.75% - LIBOR = 11.75%, a .25% savings over issuing fixed-rate debt.2. Do problem 1 over again, this time assuming more realistically that a swap bank is involved as an intermediary. Assume the swap bank is quoting five-year dollar interest rate swaps at 10.7% - 10.8% against LIBOR flat.Solution: Alpha will issue fixed-rate debt at 10.5% and Beta will issue floating rate-debt at LIBOR + 1%. Alpha will receive 10.7% from the swap bank and pay it LIBOR. Beta will pay 10.8% to the swap bank and receive from it LIBOR. If this is done, Alpha’s floating-rate all-in-cost is: 10.5% + LIBOR - 10.7% = LIBOR - .20%, a .20% savings over issuing floating-rate debt on its own. Beta’s fixed-rate all-in-cost is: LIBOR+ 1% + 10.8% - LIBOR = 11.8%, a .20% savings over issuing fixed-rate debt.3. Company A is a AAA-rated firm desiring to issue five-year FRNs. It finds that it can issue FRNs at six-month LIBOR + .125 percent or at three-month LIBOR + .125 percent. Given its asset structure, three-month LIBOR is the preferred index. Company B is an A-rated firm that also desires to issue five-year FRNs. It finds it can issue at six-month LIBOR + 1.0 percent or at three-month LIBOR + .625 percent. Given its asset structure, six-month LIBOR is the preferred index. Assume a notional principal of $15,000,000. Determine the QSD and set up a floating-for-floating rate swap where the swap bank receives .125 percent and the two counterparties share the remaining savings equally.Solution: The quality spread differential is [(Six-month LIBOR + 1.0 percent) minus (Six-month LIBOR + .125 percent) =] .875 percent minus [(Three-month LIBOR + .625 percent) minus (Three-month LIBOR + .125 percent) =] .50 percent, which equals .375 percent. If the swap bank receives .125 percent, each counterparty is to save .125 percent. To effect the swap, Company A would issue FRNs indexed to six-month LIBOR and Company B would issue FRNs indexed three-month LIBOR. Company B might make semi-annual payments of six-month LIBOR + .125 percent to the swap bank, which would pass all of it through to Company A. Company A, in turn, might make quarterly payments of three-month LIBOR to the swap bank, which would pass through three-month LIBOR - .125 percent to Company B. On an annualized basis, Company B will remit to the swap bank six-month LIBOR + .125 percent and pay three-month LIBOR + .625 percent on its FRNs. It will receive three-month LIBOR - .125 percent from the swap bank. This arrangement results in an all-in cost of the six-month LIBOR + .825 percent, which is a rate .125 percent below the FRNs indexed to six-month LIBOR + 1.0 percent Company B could issue on its own. Company A will remit three-month LIBOR to the swap bank and pay six-month LIBOR + .125 percent on its FRNs. It will receive six-month LIBOR + .125 percent from the swap bank. This arrangement results in an all-in cost of three-month LIBOR for Company A, which is .125 percent less than the FRNs indexed to three-month LIBOR + .125 percent it could issue on its own. The arrangements with the two counterparties net the swap bank .125 percent per annum, received quarterly.*4. A corporation enters into a five-year interest rate swap with a swap bank in which it agrees to pay the swap bank a fixed rate of 9.75 percent annually on a notional amount of €15,000,000 and receive LIBOR. As of the second reset date, determine the price of the swap from the corporation’s viewpoint assuming that the fixed-rate side of the swap has increased to 10.25 percent.Solution: On the reset date, the present value of the future floating-rate payments the corporation will receive from the swap bank based on the notional value will be €15,000,000. The present value of a hypothetical bond issu e of €15,000,000 with three remaining 9.75 percent coupon payments at the newfixed-rate of 10.25 percent is €14,814,304. This sum represents the present value of the remaining payments the swap bank will receive from the corporation. Thus, the swap bank should be willing to buy and the corporation should be willing to sell the swap for €15,000,000 - €14,814,304 = €185,696.5. Karla Ferris, a fixed income manager at Mangus Capital Management, expects the current positively sloped U.S. Treasury yield curve to shift parallel upward.Ferris owns two $1,000,000 corporate bonds maturing on June 15, 1999, one with a variable rate based on 6-month U.S. dollar LIBOR and one with a fixed rate. Both yield 50 basis points over comparable U.S. Treasury market rates, have very similar credit quality, and pay interest semi-annually.Ferris wished to execute a swap to take advantage of her expectation of a yield curve shift and believes that any difference in credit spread between LIBOR and U.S. Treasury market rates will remain constant.a. Describe a six-month U.S. dollar LIBOR-based swap that would allow Ferris to take advantage of her expectation. Discuss, assuming Ferris’ expectation is correct, the change in the swap’s value and how that change would affect the value of her portfolio. [No calculations required to answer part a.] Instead of the swap described in part a, Ferris would use the following alternative derivative strategy to achieve the same result.b. Explain, assuming Ferris’ expectation is correc t, how the following strategy achieves the same result in response to the yield curve shift. [No calculations required to answer part b.]Settlement Date Nominal Eurodollar Futures Contract Value12-15-97 $1,000,00003-15-98 1,000,00006-15-98 1,000,00009-15-98 1,000,00012-15-98 1,000,00003-15-99 1,000,000c. Discuss one reason why these two derivative strategies provide the same result.CFA Guideline Answera.The Swap Value and its Effect on Ferris’ PortfolioBecause Karla Ferris believes interest rates will rise, she will want to swap her $1,000,000 fixed-rate corporate bond interest to receive six-month U.S. dollar LIBOR. She will continue to hold her variable-rate six-month U.S. dollar LIBOR rate bond because its payments will increase as interest rates rise. Because the credit risk between the U.S. dollar LIBOR and the U.S. Treasury market is expected to remain constant, Ferris can use the U.S. dollar LIBOR market to take advantage of her interest rate expectation without affecting her credit risk exposure.To execute this swap, she would enter into a two-year term, semi-annual settle, $1,000,000 nominal principal, pay fixed-receive floating U.S. dollar LIBOR swap. If rates rise, the swap’s mark-to-market value will increase because the U.S. dollar LIBOR Ferris receives will be higher than the LIBOR rates from which the swap was priced. If Ferris were to enter into the same swap after interest rates rise, she would pay a higher fixed rate to receive LIBOR rates. This higher fixed rate would be calculated as the present value of now higher forward LIBOR rates. Because Ferris would be paying a stated fixed rate that is lower than this new higher-present-value fixed rate, she could sell her swap at a premium. This premium is called the “replacement cost” value of the swap.b. Eurodollar Futures StrategyThe appropriate futures hedge is to short a combination of Eurodollar futures contracts with different settlement dates to match the coupon payments and principal. This futures hedge accomplishes the same objective as the pay fixed-receive floating swap described in Part a. By discussing how the yield-curve shift affects the value of the futures hedge, the candidate can show an understanding of how Eurodollar futures contracts can be used instead of a pay fixed-receive floating swap.If rates rise, the mark-to-market values of the Eurodollar contracts decrease; their yields must increase to equal the new higher forward and spot LIBOR rates. Because Ferris must short or sell the Eurodollar contracts to duplicate the pay fixed-receive variable swap in Part a, she gains as the Eurodollar futures contracts decline in value and the futures hedge increases in value. As the contracts expire, or if Ferris sells the remaining contracts prior to maturity, she will recognize a gain that increases her return. With higher interest rates, the value of the fixed-rate bond will decrease. If the hedge ratios are appropriate, the value of the portfolio, however, will remain unchanged because of the increased value of the hedge, which offsets the fixed-rate bond’s decrease.a. Why the Derivative Strategies Achieve the Same ResultArbitrage market forces make these two strategies provide the same result to Ferris. The two strategies are different mechanisms for different market participants to hedge against increasing rates. Some money managers prefer swaps; others, Eurodollar futures contracts. Each institutional marketparticipant has different preferences and choices in hedging interest rate risk. The key is that market makers moving into and out of these two markets ensure that the markets are similarly priced and provide similar returns. As an example of such an arbitrage, consider what would happen if forward market LIBOR rates were lower than swap market LIBOR rates. An arbitrageur would, under such circumstances, sell the futures/forwards contracts and enter into a received fixed-pay variable swap. This arbitrageur could now receive the higher fixed rate of the swap market and pay the lower fixed rate of the futures market. He or she would pocket the differences between the two rates (without risk and without having to make any [net] investment.) This arbitrage could not last.As more and more market makers sold Eurodollar futures contracts, the selling pressure would cause their prices to fall and yields to rise, which would cause the present value cost of selling the Eurodollar contracts also to increase. Similarly, as more and more market makers offer to receive fixed rates in the swap market, market makers would have to lower their fixed rates to attract customers so they could lock in the lower hedge cost in the Eurodollar futures market. Thus, Eurodollar forward contract yields would rise and/or swap market receive-fixed rates would fall until the two rates converge. At this point, the arbitrage opportunity would no longer exist and the swap and forwards/futures markets would be in equilibrium.6. Rone Company asks Paula Scott, a treasury analyst, to recommend a flexible way to manage the company’s financial risks.Two years ago, Rone issued a $25 million (U.S.$), five-year floating rate note (FRN). The FRN pays an annual coupon equal to one-year LIBOR plus 75 basis points. The FRN is non-callable and will be repaid at par at maturity.Scott expects interest rates to increase and she recognizes that Rone could protect itself against the increase by using a pay-fixed swap. However, Rone’s Board of Directors prohibits both short sales of securities and swap transactions. Scott decides to replicate a pay-fixed swap using a combination of capital market instruments.a. Identify the instruments needed by Scott to replicate a pay-fixed swap and describe the required transactions.b. Explain how the transactions in Part a are equivalent to using a pay-fixed swap.CFA Guideline Answera. The instruments needed by Scott are a fixed-coupon bond and a floating rate note (FRN).The transactions required are to:∙issue a fixed-coupon bond with a maturity of three years and a notional amount of $25 million, and∙buy a $25 million FRN of the same maturity that pays one-year LIBOR plus 75 bps.b. At the outset, Rone will issue the bond and buy the FRN, resulting in a zero net cash flow at initiation. At the end of the third year, Rone will repay the fixed-coupon bond and will be repaid the FRN, resulting in a zero net cash flow at maturity. The net cash flow associated with each of the three annual coupon payments will be the difference between the inflow (to Rone) on the FRN and the outflow (to Rone) on the bond. Movements in interest rates during the three-year period will determine whether the net cash flow associated with the coupons is positive or negative to Rone. Thus, the bond transactions are financially equivalent to a plain vanilla pay-fixed interest rate swap.7. Dustin Financial owns a $10 million 30-year maturity, noncallable corporate bond with a 6.5 percent coupon paid annually. Dustin pays annual LIBOR minus 1 percent on its three-year term time deposits.Vega Corporation owns an annual-pay LIBOR floater and wants to swap for three years. One-year LIBOR is now 5 percent.a. Diagram the cash flows between Dustin, Vega, Dustin’s depositors, and Dustin’s corporate bond. Label the following items:•Dustin, Vega, Dustin’s depositors, and Dustin’s corporate bond.• Applicable interest rate at each line and specify whether it is floating orfixed.•Direction of each of the cash flows.Answer problem a in the template provided.b. i. Calculate the first new swap payment between Dustin and Vega and indicate the direction of the net payment amount.ii. Identify the net interest rate spread that Dustin expects to earn.CFA Guideline Answera. The cash flows between Dustin, Vega, Dustin’s depositors, and Dustin’s corporate bond are asfollows:b. i. As the fixed rate payer, Dustin would owe Vega $10,000,000 x 6.5% = $650,000. As the floating rate payer, Vega would owe Dustin $10,000,000 x 5.0% = $500,000. On a net basis, Dustin would pay Vega $650,000 - $500,000 = $150,000. There is no exchange of principal, either at the beginning of the swap or at payment dates.b. ii. Dustin expects to earn 1 percent spread. Dustin receives 6.5 percent on the corporate bonds it owns. After entering the swap, it also pays 6.5 percent to Vega. Effectively, then Dustin receives the corporate bond interest and passes it through to Vega. Under the swap agreement, Dustin receives LIBOR flat. Fixed 6.5% Floating: LIBOR Floating LIBOR –1% Fixed: 6.5%From this cash flow, it pays its depositors LIBOR minus 1 percent. It makes no difference to Dustin how high short-term rates move, because it has locked in a 1 percent spread.8. Ashton Bishop is the debt manager for World Telephone, which needs €3.33 billion Euro financing for its operations. Bishop is considering the choice between issuance of debt denominated in: •Euros (€), or• U.S. dollars, accompanied by a combined interest rate and currency swap.a. Explain one risk World would assume by entering into the combined interest rate and currency swap.Bishop believes that issuing the U.S.-dollar debt and entering into the swap can lower World’s cost of debt by 45 basis points. Immediately after selling the debt issue, World would swap the U.S. dollar payments for Euro payments throughout the maturity of the debt. She assumes a constant currency exchange rate throughout the tenor of the swap.Exhibit 1 gives details for the two alternative debt issues. Exhibit 2 provides current information about spot currency exchange rates and the 3-year tenor Euro/U.S. Dollar currency and interest rate swap.Exhibit 1World Telephone Debt DetailsExhibit 2Currency Exchange Rate and Swap Informationb. Show the notional principal and interest payment cash flows of the combined interest rate and currency swap.Note: Your response should show both the correct currency ($ or €) and amoun t for each cash flow. Answer problem b in the template provided.Template for problem bc. State whether or not World would reduce its borrowing cost by issuing the debt denominated in U.S. dollars, accompanied by the combined interest rate and currency swap. Justify your response with one reason.CFA Guideline Answera. World would assume both counterparty risk and currency risk. Counterparty risk is the risk that Bishop’s counterparty will default on payment of principal or interest cash flows in the swap.Currency risk is the currency exposure risk associated with all cash flows. If the US$ appreciates (Euro depreciates), there would be a loss on funding of the coupon payments; however, if the US$ depreciates, then the dollars will be worth less at the swap’s maturity.1€ 193.14 million = € 3.33 billion x 5.8%2 $219 million = $3 billion x 7.3%c. World would not reduce its borrowing cost, because what Bishop saves in the Euro market, she loses in the dollar market. The interest rate on the Euro pay side of her swap is 5.80 percent, lower than the6.25 percent she would pay on her Euro debt issue, an interest savings of 45 bps. But Bishop is only receiving7.30 percent in U.S. dollars to pay on her 7.75 percent U.S. debt interest payment, an interest shortfall of 45 bps. Given a constant currency exchange rate, this 45 bps shortfall exactly offsets the savings from paying 5.80 percent versus the 6.25 percent. Thus there is no interest cost savings by selling the U.S. dollar debt issue and entering into the swap arrangement.MINI CASE: THE CENTRALIA CORPORATION’S CURRENCY SWAPThe Centralia Corporation is a U.S. manufacturer of small kitchen electrical appliances. It has decided to construct a wholly owned manufacturing facility in Zaragoza, Spain, to manufacture microwave ovens for sale in the European Union. The plant is expected to cost €5,500,000, and to take about one year to complete. The plant is to be financed over its economic life of eight years. The borrowing capacity created by this capital expenditure is $2,900,000; the remainder of the plant will be equity financed. Centralia is not well known in the Spanish or international bond market; consequently, it would have to pay 7 percent per annum to borrow euros, whereas the normal borrowing rate in the euro zone for well-known firms of equivalent risk is 6 percent. Alternatively, Centralia can borrow dollars in the U.S. at a rate of 8 percent.Study Questions1. Suppose a Spanish MNC has a mirror-image situation and needs $2,900,000 to finance a capital expenditure of one of its U.S. subsidiaries. It finds that it must pay a 9 percent fixed rate in the United States for dollars, whereas it can borrow euros at 6 percent. The exchange rate has been forecast to be $1.33/€1.00 in one year. Set up a currency swap that will benefit each counterparty.*2. Suppose that one year after the inception of the currency swap between Centralia and the Spanish MNC, the U.S. dollar fixed-rate has fallen from 8 to 6 percent and the euro zone fixed-rate for euros has fallen from 6 to 5.50 percent. In both dollars and euros, determine the market value of the swap if the exchange rate is $1.3343/€1.00.Suggested Solution to The Centralia Corporation’s Currency Swap1. The Spanish MNC should issue €2,180,500 of 6 percent fixed-rate debt and Centralia should issue $2,900,000 of fixed-rate 8 percent debt, since each counterparty has a relative comparative advantage in their home market. They will exchange principal sums in one year. The contractual exchange rate for the initial exchange is $2,900,000/€2,180,500, or $1.33/€1.00. Annually the counterparties will swap debt service: the Spanish MNC will pay Centralia $232,000 (= $2,900,000 x .08) and Centralia will pay the Spanish MNC €130,830 (= €2,180,500 x .06). The contractual exchange rate of the first seven annual debt service exchanges is $232,000/€130,830, or $1.7733/€1.00. At maturity, Centralia and the Spanish MNC will re-exchange the principal sums and the final debt service payments. The contractual exchange rate of the final currency exchange is $3,132,000/€2,311,330 = ($2,900,000 + $232,000)/(€2,180,500 + €130,830), or $1.3551/€1.00.*2. The market value of the dollar debt is the present value of a seven-year annuity of $232,000 and a lump sum of $2,900,000 discounted at 6 percent. This present value is $3,223,778. Similarly, the market value of the euro debt is the present value of a seven-year annuity of €130,830 and a lump sum of€2,180,500 discounted at 5.50 percent. This present value is €2,242,459. The dollar value of the swap is $3,223,778 - €2,242,459 x 1.3343 = $231,665. The euro value of the swap is €2,242,459 -$3,223,778/1.3343 = -€173,623.。
国际财务管理(英文版) 第11版 马杜拉 答案 Chapter 5
Chapter 5Currency Derivatives Lecture OutlineForward MarketHow MNCs Can Use Forward ContractsNon-Deliverable Forward ContractsCurrency Futures MarketContract SpecificationsFuturesTradingComparison of Currency Futures and Forward ContractsPricing Currency FuturesCredit Risk of Currency Futures ContractsSpeculation with Currency FuturesHow Firms Use Currency FuturesClosing Out a Futures PositionTransaction Costs of Currency FuturesCurrency Call OptionsFactors Affecting Call Option PremiumsHow Firms Use Currency Call OptionsSpeculating with Currency Call OptionsCurrency Put OptionsFactors Affecting Currency Put Option PremiumsHedging with Currency Put OptionsSpeculating with Currency Put OptionsContingency Graphs for Currency Options Conditional Currency OptionsEuropean Currency OptionsChapter ThemeThis chapter provides an overview of currency derivatives, which are sometimes referred to as “speculative.” Yet, firms are increasing their use of these instruments for hedging. The chapter does give speculation some attention, since this is a good way to illustrate the use of a particular instrument based on certain expectations. However, the key is that students have an understanding why firms would consider using these instruments and under what conditions they would use them.Topics to Stimulate Class Discussion1. Why would a firm ever consider futures contracts instead of forward contracts?2. What advantage do currency options offer that are not available with futures or forwardcontracts?3. What are some disadvantages of currency option contracts?4. Why do currency futures prices change over time?5. Why do currency options prices change over time?6. Set up several scenarios, and for each scenario, ask students to determine whether it would bebetter for the firm to purchase (or sell) forward contracts, futures contracts, call option contracts, or put options contracts.Critical debate:HedgingProposition: MNC’s should not protect against currency changes. Investors take into account currency risks and the diversification benefits from investing in companies that conduct international business. But if these companies are going to protect themselves against one of the main sources of diversification, namely currency changes, they are in effect denying investors the opportunity to benefit from such diversification in order to protect their own positions as directors.Opposing view: Companies specialize in certain activities that generally do not include currency speculation. Derivatives enable such companies to specialize in more clearly defined risks. The protection is in any case only short term, no protection is being offered for long term changes in the value of a currency. Derivatives simply avoid distortion to profits caused by unusual changes to currency values. Such currency shocks could lead to abnormal share price movements that might adversely affect individual shareholders who have to sell for personal reasons.With whom do you agree? How should the investment community view business risk?Should shareholders be more aware of the currency risk policy of the company? Are directors protecting their own positions at the expense of the shareholder? Offer your own opinion on this issue.ANSWER: The mian ppoint is trhat the company should heve a clearly defined foreign exchange rate policy. Annual reports states clearly the general poicy of companies. Often that they do not hedge translation risk as in this example from Renault 2004Renault does not generally hedge its future operating cash flows inforeign currencies. The operating margin is therefore subject in the futureto changes caused by exchange rate fluctuations. In this way, Renaultaverages out any impacts over a long period, while not assuming the risksinherent in forward currency hedging.Often an extimate of the impact of a change in the exchange rate on operation profits will also be given. For example from the same report:How shareholder probably has little say over such a detailed policy, but investing in Renault does make it clear as to how earnings if not share price reacts to the exchange rate. Later in the text itis shown that share prices react predominantly in relation to the home country share index, so the idea that one can buy exposure to foreign currencies in this way is a bit of a myth.Answers to End of Chapter Questions1. Forward versus Futures Contracts. Compare and contrast forward and futures contracts.ANSWER: Because currency futures contracts are standardized into small amounts, they can be valuable for the speculator or small firm (a commercial bank’s forward contracts are more common for larger amounts). However, the standardized format of futures forces limited maturities and amounts.2. Using Currency Futures.a. How can currency futures be used by corporations?ANSWER: U.S. corporations that desire to lock in a price at which they can sell a foreign currency would sell currency futures. U.S. corporations that desire to lock in a price at which they can purchase a foreign currency would purchase currency futures.b. How can currency futures be used by speculators?ANSWER: Speculators who expect a currency to appreciate could purchase currency futures contracts for that currency. Speculators who expect a currency to depreciate could sell currency futures contracts for that currency.3. Currency Options. Differentiate between a currency call option and a currency put option.ANSWER: A currency call option provides the right to purchase a specified currency at a specified price within a specified period of time. A currency put option provides the right to sell a specified currency for a specified price within a specified period of time.4. Forward Premium. Compute the forward discount or premium for the Mexican peso whose90-day forward rate is £0.05 and spot rate is £0.051. State whether your answer is a discount or premium.ANSWER: (F - S) / S= (0.05 – 0.051)/0.051 x 360/90 = -.078 or -7.8% a discount therefore5. Effects of a Forward Contract. How can a forward contract backfire?ANSWER: If the spot rate of the foreign currency at the time of the transaction is worth less than the forward rate that was negotiated, or is worth more than the forward rate that was negotiated, the forward contract has backfired.6. Hedging With Currency Options. When would a U.S. firm consider purchasing a calloption on euros for hedging? When would a U.S. firm consider purchasing a put option on euros for hedging?ANSWER: A call option can hedge a firm’s future payables denominated in euros. It effectively locks in the maximum price to be paid for euros.A put option on euros can hedge a U.S. firm’s future receivables denominated in euros. Iteffectively locks in the minimum price at which it can exchange euros received.7. Speculating With Currency Options. When should a speculator purchase a call option onAustralian dollars? When should a speculator purchase a put option on Australian dollars?ANSWER: Speculators should purchase a call option on Australian dollars if they expect the Australian dollar value to appreciate substantially over the period specified by the option contract.Speculators should purchase a put option on Australian dollars if they expect the Australian dollarvalue to depreciate substantially over the period specified by the option contract.8.Currency Call Option Premiums. List the factors that affect currency call option premiumsand briefly explain the relationship that exists for each. Do you think an at-the-money call option in euros has a higher or lower premium than an at-the-money call option on dollars (assuming the expiration date and the total dollar value represented by each option are the same for both options)?ANSWER: These factors are listed below:•The higher the existing spot rate relative to the strike price, the greater is the call option value, other things equal.•The longer the period prior to the expiration date, the greater is the call option value, other things equal.•The greater the variability of the currency, the greater is the call option value, other things equal.The at-the-money call option in euros should have a lower premium because the euro should have less volatility than the dollar.9. Currency Put Option Premiums. List the factors that affect currency put options and brieflyexplain the relationship that exists for each.ANSWER: These factors are listed below:•The lower the existing spot rate relative to the strike price, the greater is the put option value, other things equal.•The longer the period prior to the expiration date, the greater is the put option value, other things equal.•The greater the variability of the currency, the greater is the put option value, other things equal.10. Speculating with Currency Call Options. Randy Rudecki purchased a call option on Britishpounds for 0.02 euros per unit. The strike price was 1.45euros, and the spot rate at the time the option was exercised was 1.46 euros. Assume there are 31,250 units in a British pound option. What was Randy’s net profit on this option?ANSWER:Profit per unit on exercising the option = 0.01 eurosPremium paid per unit = 0.02 eurosNet profit per unit = –0.01 eurosNet profit per option = 31,250 units × (–0.01 euros) = –312.50 euros11. Speculating with Currency Put Options. Alice Duever purchased a put option on dollarsfor £0.04 per unit. The strike price was £0.55, and the spot rate at the time the dollar option was exercised was £0.63. Assume there are 50,000 units in a US dollar option. What was Alice’s net profit on the option?ANSWER:Profit per unit on exercising the option = £0.00 option not exercisedPremium paid per unit = £0.04Net profit per unit = - £0.04Net profit for one option = 31,250 units × $.17 = -£1,25012. Selling Currency Call Options. Mike Suerth sold a call option on Canadian dollars for£0.01 per unit. The strike price was £0.42, and the spot rate at the time the option was exercised was £0.46. Assume Mike did not obtain Canadian dollars until the option was exercised. Also assume that there are 50,000 units in a Canadian dollar option. What was Mike’s net profit on the call option?ANSWER:Firstly, the call option will be exercisedPremium received per unit = £0.01Amount per unit received from selling C$ at strike = £0.42Amount per unit paid when purchasing C$ = £0.46Net profit per unit = -£0.03Net Profit = 50,000 units × (–£0.03) = –£1,50013. Selling Currency Put Options. Brian Tull sold a put option on Canadian dollars for £0.02per unit. The strike price was £0.42, and the spot rate at the time the option was exercised was £0.40. Assume Brian immediately sold off the Canadian dollars received when the option was exercised. Also assume that there are 50,000 units in a Canadian dollar option. What was Brian’s net profit on the put option?ANSWER:Firstly, the put option will be exercisedPremium received per unit = £0.02Amount per unit received from selling C$ at spot = £0.40Amount per unit paid for C$ = £0.42Net profit per unit = £0.0014. Forward versus Currency Option Contracts. What are the advantages and disadvantagesto an MNC that uses currency options on euros rather than a forward contract on euros to hedge its exposure in euros? Explain why an MNC use forward contracts to hedge committed transactions and use currency options to hedge contracts that are anticipated but not committed. Why might forward contracts be advantageous for committed transactions, and currency options be advantageous for anticipated transactions?ANSWER: A currency option on euros allows more flexibility since it does not commit one to purchase or sell euros (as is the case with a euro futures or forward contract). Yet, it does allow the option holder to purchase or sell euros at a locked-in price.The disadvantage of a euro option is that the option itself is not free. One must pay a premium for the call option, which is above and beyond the exercise price specified in the contract at which the euro could be purchased.An MNC may use forward contracts to hedge committed transactions because it would be cheaper to use a forward contract (a premium would be paid on an option contract that has an exercise price equal to the forward rate). The MNC may use currency options contracts to hedge anticipated transactions because it has more flexibility to let the contract go unexercised if the transaction does not occur.15. Speculating with Currency Futures. Assume that the euro’s spot rate has moved in cyclesover time. How might you try to use futures contracts on euros to capitalize on this tendency? How could you determine whether such a strategy would have been profitable in previous periods?ANSWER: Use recent movements in the euro to forecast future movements. If the euro has been strengthening, purchase futures on euros. If the euro has been weakening, sell futures on euros.A strategy’s profitability can be determined by comparing the amount paid for each contractto the amount for which each contract was sold.We need to note that currencies do not move in patterns, it would be noticed by other traders!16. Hedging with Currency Derivatives. Assume that the transactions listed in the first columnof the following table are anticipated by UK firms that have no other foreign transactions.Place an “X” in the table wherever you see possible ways to hedge each of the transactions.a. George ltdplans to purchase Japanese goods denominated in yen.b. Harvard ltd sold goods to Japan, denominated in yen.c. Yale plc has a subsidiary in Australia that will be remitting funds to the U.S. parent.d. Brown ltd needs to pay off existing loans that are denominated in Canadian dollars.e.Princeton ltd may purchase a company in Japan in the near future (but the deal may notgo through).ANSWER:Forward Contract Futures Contract Options ContractForward Forward Buy Sell Purchase Purchase Purchase Sale Futures Futures Calls Putsa.X X Xb. X X Xc. X X Xd. X X Xe. X17. Price Movements of Currency Futures. Assume that on November 1, the spot rate of the British pound was £0.63 and the price on a December futures contract was £0.64. Assume that the pound depreciated during November so that by November 30 it was worth £0.60.a. What do you think happened to the futures price over the month of November? Why?ANSWER: The December futures price would have decreased, because it reflects expectations of the future spot rate as of the settlement date. If the existing spot rate is £0.60, the spot rate expected on the December futures settlement date is likely to be near £0.60 as well. As you get closer to the maturity date so the difference between buying at spot and buying using a futures decreases, so as the law of one price dictates, the price should be nearly the same for nearly the same service.b. If you had known that this would occur, would you have purchased or sold a Decemberfutures contract in pounds on November 1? Explain.ANSWER: You would have sold futures at the existing futures price of £0.64. Then as the spot rate of the pound declined, the futures price would decline and you could close out your futures position by purchasing a futures contract at a lower price. Alternatively, you could wait until the settlement date, purchase the pounds in the spot market at £0.60, and fulfill the futures obligation by delivering pounds at the price of £0.64 per dollar.18. Speculating with Currency Futures. Assume that a March futures contract on Mexicanpesos was available in January for $.09 per unit. Also assume that forward contracts were available for the same settlement date at a price of $.092 per peso. How could speculators capitalize on this situation, assuming zero transaction costs? How would such speculative activity affect the difference between the forward contract price and the futures price?ANSWER: Speculators could purchase peso futures for $.09 per unit, and simultaneously sell pesos forward at $.092 per unit. When the pesos are received (as a result of the futures position) on the settlement date, the speculators would sell the pesos to fulfill their forward contract obligation. This strategy results in a $.002 per unit profit.As many speculators capitalize on the strategy described above, they would place upward pressure on futures prices and downward pressure on forward prices. Thus, the difference between the forward contract price and futures price would be reduced or eliminated.19. Speculating with Currency Call Options. LSU Corp. purchased Canadian dollar calloptions for speculative purposes. If these options are exercised, LSU will immediately sell the Canadian dollars in the spot market. Each option was purchased for a premium of $.03 per unit, with an exercise price of $.75. LSU plans to wait until the expiration date before deciding whether to exercise the options. Of course, LSU will exercise the options at that time only if it is feasible to do so. In the following table, fill in the net profit (or loss) per unit to LSU Corp. based on the listed possible spot rates of the Canadian dollar on the expiration date.ANSWER:Possible Spot Rate Net Profit (Loss) perof Canadian Dollar Unit to LSU Corporationon Expiration Date if Spot Rate Occurs$.76 –$.02.78 .00.80 .02.82 .04.85 .07.87 .0920. Speculating with Currency Put Options. Auburn ltd has purchased Canadian dollar putoptions for speculative purposes. Each option was purchased for a premium of £0.02 per unit, with an exercise price of £0.48 per unit. Auburn ltd will purchase the Canadian dollars just before it exercises the options (if it is feasible to exercise the options). It plans to wait until the expiration date before deciding whether to exercise the options. In the following table, fill in the net profit (or loss) per unit to Auburn ltd based on the listed possible spot rates of the Canadian dollar on the expiration date.Possible spot rate on Canadian dollar on expiration dateNet profit (loss) perunit to Auburnltd£0.42 0.04£0.44 0.02£0.46 0.00£0.48 -0.02£0.50 -0.02£0.52 -0.0221. Speculating with Currency Call Options. Bama plc has sold dollar call options for speculative purposes. The option premium was £0.04 per unit, and the exercise price was £0.54. Bama will purchase the dollars on the day the options are exercised (if the options are exercised) in order to fulfill its obligation. In the following table, fill in the net profit (or loss) to Bama plc if the listed spot rate exists at the time the purchaser of the call options considers exercising them.Possible spot rate at the time the purchaser of the Call option(Americanstyle) considersexercising themNet profit (loss) perunit to BamaCorp.£0.480.04 £0.500.04 £0.520.04 £0.54 0.04 £0.560.02 £0.580.00 £0.60-0.0222. Speculating with Currency Put Options. Bulldog ltd has sold Australian dollar put optionsat a premium of £0.01 per unit, and an exercise price of £0.42 per unit. It has forecasted the Australian dollar’s lowest level over the period of concern as shown in the following table. Determine the net profit (or loss) per unit to Bulldog ltd if each level occurs and the put options are exercised at that time.Possible value of Australian dollar Net profit (loss) perunit to Bulldogltd if valueoccurs.£0.38 -£0.03£0.39 -£0.02£0.40 -£0.01£0.41 £0.00£0.42 £0.0123. Hedging with Currency Derivatives. A U.S. professional football team plans to play anexhibition game in the United Kingdom next year. Assume that all expenses will be paid by the British government, and that the team will receive a check for 1 million pounds. The team anticipates that the pound will depreciate substantially by the scheduled date of the game. In addition, the National Football League must approve the deal, and approval (or disapproval) will not occur for three months. How can the team hedge its position? What is there to lose by waiting three months to see if the exhibition game is approved before hedging?ANSWER: The team could purchase put options on pounds in order to lock in the amount at which it could convert the 1 million pounds to dollars. The expiration date of the put option should correspond to the date in which the team would receive the 1 million pounds. If the deal is not approved, the team could let the put options expire.If the team waits three months, option prices will have changed by then. If the pound has depreciated over this three-month period, put options with the same exercise price would command higher premiums. Therefore, the team may wish to purchase put options immediately. The team could also consider selling futures contracts on pounds, but it would be obligated to exchange pounds for dollars in the future, even if the deal is not approved. Advanced Questions24. Risk of Currency Futures.Currency futures markets are commonly used as a means ofcapitalizing on shifts in currency values, because the value of a futures contract tends to move in line with the change in the corresponding currency value. Recently, many currencies appreciated against the dollar. Most speculators anticipated that dollars value would continue to decline. However, the Fed intervened in the foreign exchange market by immediately buying dollars with foreign currency, causing an abrupt halt in the decline in the value of the dollar. Participants that had sold dollar futures contracts for a range of other currencies incurred large losses.a. Explain why the central bank’s intervention caused such panic among currency futurestraders with buy positions.ANSWER: Futures prices on pounds rose in tandem with the value of the pound. However, when central banks intervened to support the dollar, the value of the pound declined, and so did values of futures contracts on pounds. So traders with long (buy) positions in these contracts experienced losses because the contract values declined.b. Some traders with buy positions may have responded immediately to the central bank’sintervention by selling futures contracts. Why would some speculators with buy positions leave their positions unchanged or even increase their positions by purchasing more futures contracts in response to the central bank’s intervention?ANSWER: Central bank intervention sometimes has only a temporary effect on exchange rates. Thus, the European currencies could strengthen after a temporary effect caused by central bank intervention. Traders have to predict whether natural market forces will ultimately overwhelm any pressure induced as a result of central bank intervention.25. Currency Straddles. Reska ltd has constructed a long euro straddle. A call option on euroswith an exercise price of £0.61 has a premium of £0.015 per unit. A euro put option has a premium of £0.008 per unit. Some possible euro values at option expiration are shown in the following table. (See Appendix B in this chapter.)a. Complete the worksheet and determine the net profit per unit toValue of Euro at option Expiration£0.50 £0.55 £0.60 £0.65Call -0.015 -0.015 -0.015 0.025Put 0.102 0.052 0.002 -0.008Net 0.087 0.037 -0.013 0.017Reska, ltd for each possible future spot rate.b. Determine the break-even point(s) of the long straddle. What are the break-even points of ashort straddle using these options?ANSWER: the cost is the combined premiums so 0.008 + 0.015 = 0.023, so the difference above and below the strike price of £0.61 must cosver this cost i.e. 0.61 + 0.023 = 0.633 and 0.61 – 0.023 = 0.587 so the breakeven points are £0.633 and £0.587. The short straddle for the same exercise price is the other side, the seller of the call and seller of the put. The breakeven points are the same.26. C urrency Straddles. Refer to the previous question, but assume that the call and putoption premiums are £0.01 per unit and £0.006 per unit, respectively. (See Appendix B in this chapter.)a. Construct a contingency graph for a long euro straddle.b. Construct a contingency graph for a short euro straddle.a.profitLossb.ANSWER:profitLoss27. C urrency Option Contingency Graphs. (See Appendix B in this chapter.) The current spot rate of the Singapore dollar (S$) is £0.34. The following option information is available: ☐ Call option premium on Singapore dollar (S$) = £0.015☐ Put option premium on Singapore dollar (S$) = £0.009☐ Call and put option strike price = £0.36☐ One option contract represents S$70,000.Construct a contingency graph for a short straddle using these options.ANSWER:profitLoss28. Speculating with Currency Straddles. Maggie Hawthorne is a currency speculator. She hasnoticed that recently the dollar has depreciated substantially against the euro. The current exchange rate of the dollar is 0.78 euro. After reading a variety of articles on the subject, she believes that the dollar will continue to fluctuate substantially in the months to come.Although most forecasters believe that the dollar will depreciate against the euro in the near future, Maggie thinks that there is also a good possibility of further appreciation. Currently, a call option on dollars is available with an exercise price of 0.80 euro and a premium of 0.04 euro. A dollar put option with an exercise price of 0.80 euro and a premium of 0.03 euro is also available. (See Appendix B in this chapter.)a. Describe how Maggie could use straddles to speculate on the dollar’s value.b. At option expiration, the value of the dollar is 0.90 euro. What is Maggie’s total profit or lossfrom a long straddle position?c. What is Maggie’s total profit or loss from a long straddle position if the value of the dollar is0.60 euro at option expiration?d. What is Maggie’s total profit or loss from a long straddle position if the value of the dollar atoption expiration is still 0.78 euro?e. Given your answers to the questions above, when is it advantageous for a speculator to engagein a long straddle? When is it advantageous to engage in a short straddle?ANSWERa.Since Maggie believes the dollar will either appreciate or depreciate substantially, shemay consider purchasing a straddle on dollar.b.Per UnitSelling Price of $ 0.90 euro– Purchase price of $ -0.80 euro– Premium paid for call option -0.04 euro– Premium paid for put option -0.03euro= Net profit 0.03 euroc.Per UnitSelling Price of € 0.80 euro– Purchase price of € -0.60 euro– Premium paid for call option -0.04 euro– Premium paid for put option -0.03euro= Net profit 0.17 eurod.Per UnitSelling Price of € 0.80– Purchase price of € 0.78– Premium paid for call option -0.04 euro– Premium paid for put option -0.03euro= Net profit -0.05 euroe. It is advantageous for a speculator to engage in a long straddle if the underlying currency isexpected to fluctuate drastically, in either direction, prior to option expiration. This is because the advantage of benefiting from either an appreciation or depreciation is offset by the cost of two option premiums. It is advantageous for a speculator to engage in a short straddle if the underlying currency is not expected to deviate far from the strike price prior to option expiration. In that case, the speculator would collect both premiums, and the loss associated with either the call or the put option is minimal.。
国际财务管理JeffMadura英文第八版chap5case答案
国际财务管理JeffMadura英文第八版chap5case答案Chapter 5 Case Study use of currency derivative instruments1.the table shows how the option choices have changed for Blades. If it wants to ensure no morethan 5% above the spot rate, the option with the exercise price of $.00756 should be considered, although the premium on that option now has increased to be worth 2% of the exercise price (more expensive). The option premium is higher than what the firm normally prefers to pay. The firm could pay a lower premium by purchasing the alternative option with an exercise price of $.00792, but that exercise price is 10% above the existing spot rate. So if the firm is to continue to use options, it must accept either paying a higher premium than it would prefer, or a higher exercise price that limits the effectiveness of the hedge. If it decides to use an option, the tradeoff is paying a premium of $1417.50 to limit the payables amount to $99000 or paying a premium of $1890 to limit the payables amount to $94500. The preferred option depends on the firm’s assessment about the yen, but many analysts would select the higher premium (an extra $472.50) to pay for the lower limit on payables.2.Blades could also remain unhedged, but given its previous desire to hedge because of thevolatile movements even before the event, it would have an even stronger desire to hedge once the event caused more uncertainty-increasing event, Blades should seriously consider futures contracts as an alternative to options. Thus, the firm could purchase a futures contract and lock in its future payment at the same futures price as before the event.3.The expectation of the future spot rate would be equal to the futures rate, $.006912. Forexample, suppose speculators expect the yen to appreciate. They would buy yen futures now. If the yen appreciates, they will buy the yen at the futures rate in two months and sell them at the spot rate prevailing at that time. Thus, if the market expectation is that the yen will appreciate, all speculators will engage in similar actions, which would place upward pressure on the futures rate and downward pressure on the expected future spot rate. This process continues until the futures rate is equal to the expected future spot rate. Therefore, the expected spot rate at the delivery date is equal to the futures rate, $.006912.4.① remain unhedged: expected spot rate $.006912Amount of yen payables 12500000Cost in two months ($.006912 * 12500000) $86,400.00② purchase one futures contract: futures price per unit $.006912Amount of yen payables 12500000Cost in two months ($.006912 * 12500000) $86,400.00③ purchase two optionsOptions information option1 option 2Exercise price $.00756 $.00792Premium per unit $.0001512 $.0001134Units in contract 6,250,000 6,250,000Total premium Exercise? Amount paid for yen Total paidTwo options, exercise $1890.00 NO $86400 $88290Price of $.00756Two options, exercise $1417.50 NO $86400 $87917.50Price of $.00792One option of each $ 1653.75 1-no; 2-no $86400 $ 88053.75Exercise priceSo, the optimal choice, given the expected future spot rate in Q3 and given that the decision is made solely on a cost basis, is to purchase futures contract, which would result in an actual cost on the delivery date of $86400. Although remaining unhedged also has an expected cost of $86400, actual costs incurred on the delivery date to purchase yen may deviate substantially from this value, depending on the movements of the yen between the order date and the delivery date. Consequently, the firm will probably prefer using a futures contract over remaining unhedged.5.No, as mentioned in the case, the yen is very volatile and, therefore, the actual costs incurredmay turn out to be lower had the firm employed either an option to hedge the yen payable or remained unhedged. By employed a futures contract to hedge, which locks the firm into the price it will pay to buy the yen at the delivery date, the firm forgoes any cost advantage that may unhedged and employing options afford the firm with the flexibility to buy yen at the spot rate;this flexibility is not available with a futures contract.6.If the futures rate remains at its current level while the expected spot rate at the delivery dateincreased($.006912 + 2*0.0005=$.007912), remaining unhedged will become more expensive than hedging with a futures contract. However, as the spreadsheet shows, the option with the exercise price of $.00756 would now be exercised. Nevertheless, since both options have an exercise price greater than the futures rate of $.006912, and since the expected futurespot rate is greater than the futures rate, the futures contract is again the best choice for the firm. Spreadsheet: ① remain unhedged: expected spot rate $.007912Amount of yen payables 12500000Cost in two months ($.006912 * 12500000) $98,900.00② purchase one futures contract: futures price per unit $.006912Amount of yen payables 12500000Cost in two months ($.006912 * 12500000) $86,400.00③ purchase two o ptionsOptions information option1 option 2Exercise price $.00756 $.00792Premium per unit $.0001512 $.0001134Units in contract 6,250,000 6,250,000Total premium Exercise? Amount paid for yen Total paidTwo options, exercise $1890.00 YES $94,500.00 $96,390.00 Price of $.00756Two options, exercise $1417.50 NO $98,900.00 $100,317.50 Price of $.00792One option of each $ 1653.75 1-YES; 2-no $96,700.00 $ 98,353.75Exercise price。
国际财务管理课后习题答案chapter 5
CHAPTER 5 THE MARKET FOR FOREIGN EXCHANGESUGGESTED ANSWERS AND SOLUTIONS TO END—OF—CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Give a full definition of the market for foreign exchange.Answer： Broadly defined, the foreign exchange (FX） market encompasses the conversion of purchasing power from one currency into another，bank deposits of foreign currency, the extension of credit denominated in a foreign currency， foreign trade financing， and trading in foreign currency options and futures contracts。
2。
What is the difference between the retail or client market and the wholesale or interbank market for foreign exchange？Answer：The market for foreign exchange can be viewed as a two-tier market。
One tier is the wholesale or interbank market and the other tier is the retail or client market。
International banks provide the core of the FX market. They stand willing to buy or sell foreign currency for their own account. These international banks serve their retail clients， corporations or individuals， in conducting foreign commerce or making international investment in financial assets that requires foreign exchange。
国际财务管理课后习题答案chapter 5
CHAPTER 5 THE MARKET FOR FOREIGN EXCHANGESUGGESTED ANSWERS AND SOLUTIONS TO END—OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Give a full definition of the market for foreign exchange。
Answer： Broadly defined， the foreign exchange (FX） market encompasses the conversion of purchasing power from one currency into another, bank deposits of foreign currency，the extension of credit denominated in a foreign currency，foreign trade financing, and trading in foreign currency options and futures contracts.2。
What is the difference between the retail or client market and the wholesale or interbank market for foreign exchange?Answer：The market for foreign exchange can be viewed as a two—tier market。
One tier is the wholesale or interbank market and the other tier is the retail or client market. International banks provide the core of the FX market. They stand willing to buy or sell foreign currency for their own account。
国际财务管理(英文版)课后习题答案9
CHAPTER 8 MANAGEMENT OF TRANSACTION EXPOSURE SUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMSQUESTIONS1. How would you define transaction exposure? How is it different from economic exposure?Answer: Transaction exposure is the sensitivity of realized domestic currency values of the firm’s contractual cash flows denominated in foreign currencies to unexpected changes in exchange rates. Unlike economic exposure, transaction exposure is well-defined and short-term.2. Discuss and compare hedging transaction exposure using the forward contract vs. money market instruments. When do the alternative hedging approaches produce the same result?Answer: Hedging transaction exposure by a forward contract is achieved by selling or buying foreign currency receivables or payables forward. On the other hand, money market hedge is achieved by borrowing or lending the present value of foreign currency receivables or payables, thereby creating offsetting foreign currency positions. If the interest rate parity is holding, the two hedging methods are equivalent.3. Discuss and compare the costs of hedging via the forward contract and the options contract.Answer: There is no up-front cost of hedging by forward contracts. In the case of options hedging, however, hedgers should pay the premiums for the contracts up-front. The cost of forward hedging, however, may be realized ex post when the hedger regrets his/her hedging decision.4. What are the advantages of a currency options contract as a hedging tool compared with the forward contract?Answer: The main advantage of using options contracts for hedging is that the hedger can decide whether to exercise options upon observing the realized future exchange rate. Options thus provide a hedge against ex post regret that forward hedger might have to suffer. Hedgers can only eliminate the downside risk while retaining the upside potential.5. Suppose your company has purchased a put option on the German mark to manage exchange exposure associated with an account receivable denominated in that currency. In this case, your company can be said to have an ‘insurance’ policy on its receivable. Explain in what sense this is so.Answer: Your company in this case knows in advance that it will receive a certain minimum dollar amount no matter what might happen to the $/€ exchange rate. Furthermore, if the German mark appreciates, your company will benefit from the rising euro.6. Recent surveys of corporate exchange risk management practices indicate that many U.S. firms simply do not hedge. How would you explain this result?Answer: There can be many possible reasons for this. First, many firms may feel that they are not really exposed to exchange risk due to product diversification, diversified markets for their products, etc. Second, firms may be using self-insurance against exchange risk. Third, firms may feel that shareholders can diversify exchange risk themselves, rendering corporate risk management unnecessary.7. Should a firm hedge? Why or why not?Answer: In a perfect capital market, firms may not need to hedge exchange risk. But firms can add to their value by hedging if markets are imperfect. First, if management knows about the firm’s exposure better than shareholders, the firm, not it s shareholders, should hedge. Second, firms may be able to hedge at a lower cost. Third, if default costs are significant, corporate hedging can be justifiable because it reduces the probability ofdefault. Fourth, if the firm faces progressive taxes, it can reduce tax obligations by hedging which stabilizes corporate earnings.8. Using an example, discuss the possible effect of hedging on a firm’s tax obligations.Answer: One can use an example similar to the one presented in the chapter.9. Explain contingent exposure and discuss the advantages of using currency options to manage this type of currency exposure.Answer: Companies may encounter a situation where they may or may not face currency exposure. In this situation, companies need options, not obligations, to buy or sell a given amount of foreign exchange they may or may not receive or have to pay. If companies either hedge using forward contracts or do not hedge at all, they may face definite currency exposure.10. Explain cross-hedging and discuss the factors determining its effectiveness.Answer: Cross-hedging involves hedging a position in one asset by taking a position in another asset. The effectiveness of cross-hedging would depend on the strength and stability of the relationship between the two assets.PROBLEMS1. Cray Research sold a super computer to the Max Planck Institute in Germany on credit and invoiced €10 million payable in six months. Currently, the six-month forward exchange rate is $1.10/€ and the foreign exchange advisor for Cray Research predicts that the spot rate is likely to be $1.05/€ in six months.(a) What is the expected gain/loss from the forward hedging?(b) If you were the financial manager of Cray Research, would you recommend hedging this euro receivable? Why or why not?(c) Suppose the foreign exchange advisor predicts that the future spot rate will be the same as the forward exchange rate quoted today. Would you recommend hedging in this case? Why or why not?Solution: (a) Expected gain($) = 10,000,000(1.10 – 1.05)= 10,000,000(.05)= $500,000.(b) I would recommend hedging because Cray Research can increase the expected dollar receipt by $500,000 and also eliminate the exchange risk.(c) Since I eliminate risk without sacrificing dollar receipt, I still would recommend hedging.2. IBM purchased computer chips from NEC, a Japanese electronics concern, and was billed ¥250 million payable in three months. Currently, the spot exchange rate is ¥105/$ and the three-month forward rate is ¥100/$. The three-month money market interest rate is 8 percent per annum in the U.S. and 7 percent per annum in Japan. The management of IBM decided to use the money market hedge to deal with this yen account payable.(a) Explain the process of a money market hedge and compute the dollar cost of meeting the yen obligation.(b) Conduct the cash flow analysis of the money market hedge.Solution: (a). Let’s first compute the PV of ¥250 million, i.e.,250m/1.0175 = ¥245,700,245.7So if the above yen amount is invested today at the Japanese interest rate for three months, the maturity value will be exactly equal to ¥25 million which is the amount of payable. To buy the above yen amount today, it will cost:$2,340,002.34 = ¥250,000,000/105.The dollar cost of meeting this yen obligation is $2,340,002.34 as of today.(b)___________________________________________________________________Transaction CF0 CF1____________________________________________________________________1. Buy yens spot -$2,340,002.34with dollars ¥245,700,245.702. Invest in Japan - ¥245,700,245.70¥250,000,0003. Pay yens - ¥250,000,000Net cash flow - $2,340,002.34____________________________________________________________________3. You plan to visit Geneva, Switzerland in three months to attend an international business conference. You expect to incur the total cost of SF 5,000 for lodging, meals and transportation during your stay. As of today, the spot exchange rate is $0.60/SF and the three-month forward rate is $0.63/SF. You can buy the three-month call option on SF with the exercise rate of $0.64/SF for the premium of $0.05 per SF. Assume that your expected future spot exchange rate is the same as the forward rate. The three-month interest rate is 6 percent per annum in the United States and 4 percent per annum in Switzerland. (a) Calculate your expected dollar cost of buying SF5,000 if you choose to hedge via call option on SF.(b) Calculate the future dollar cost of meeting this SF obligation if you decide to hedge using a forward contract.(c) At what future spot exchange rate will you be indifferent between the forward and option market hedges?(d) Illustrate the future dollar costs of meeting the SF payable against the future spot exchange rate under both the options and forward market hedges.Solution: (a) Total option premium = (.05)(5000) = $250. In three months, $250 is worth $253.75 = $250(1.015). At the expected future spot rate of $0.63/SF, which is less than the exercise price, you don’t expect to exercise options. Rather, you expect to buy Swiss franc at $0.63/SF. Since you are going to buy SF5,000, you expect to spend $3,150 (=.63x5,000). Thus, the total expected cost of buying SF5,000 will be the sum of $3,150 and $253.75, i.e., $3,403.75.(b) $3,150 = (.63)(5,000).(c) $3,150 = 5,000x + 253.75, where x represents the break-even future spot rate. Solving for x, we obtain x = $0.57925/SF. Note that at the break-even future spot rate, options will not be exercised.(d) If the Swiss franc appreciates beyond $0.64/SF, which is the exercise price of call option, you will exercise the option and buy SF5,000 for $3,200. The total cost of buying SF5,000 will be $3,453.75 = $3,200 + $253.75.This is the maximum you will pay.4. 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 rat e is 6.0% in the U.S. and5.0% in France. Boeing is concerned with the volatile exchange rate between the dollar and the euro and would like to hedge exchange exposure.(a) It is considering two hedging alternatives: sell the euro proceeds from the sale forward or borrow euros from the Credit Lyonnaise against the euro receivable. Which alternative would you recommend? Why?(b) Other things being equal, at what forward exchange rate would Boeing be indifferent between the two hedging methods?Solution: (a) In the case of forward hedge, the future dollar proceeds will be (20,000,000)(1.10) = $22,000,000. In the case of money market hedge (MMH), the firm has to first borrow the PV of its euro receivable, i.e., 20,000,000/1.05 =€19,047,619. Then the firm should exchange this euro amount into dollars at the current spot rate to receive: (€19,047,619)($1.05/€) = $20,000,000, which can be invested at the dollar interest rate $ Cost Options hedge Forward hedge $3,453.75 $3,150 0 0.579 0.64 (strike price) $/SF$253.75for one year to yield:$20,000,000(1.06) = $21,200,000.Clearly, the firm can receive $800,000 more by using forward hedging.(b) According to IRP, F = S(1+i$)/(1+i F). Thus the “indifferent” forward rate will be:F = 1.05(1.06)/1.05 = $1.06/€.5. Suppose that Baltimore Machinery sold a drilling machine to a Swiss firm and gave the Swiss client a choice of paying either $10,000 or SF 15,000 in three months.(a) In the above example, Baltimore Machinery effectively gave the Swiss client a free option to buy up to $10,000 dollars using Swiss franc. What is the ‘implied’ exercise exchange rate?(b) If the spot exchange rate turns out to be $0.62/SF, which currency do you think the Swiss client will choose to use for payment? What is the value of this free option for the Swiss client?(c) What is the best way for Baltimore Machinery to deal with the exchange exposure?Solution: (a) The implied exercise (price) rate is: 10,000/15,000 = $0.6667/SF.(b) If the Swiss client chooses to pay $10,000, it will cost SF16,129 (=10,000/.62). Since the Swiss client has an option to pay SF15,000, it will choose to do so. The value of this option is obviously SF1,129 (=SF16,129-SF15,000).(c) Baltimore Machinery faces a contingent exposure in the sense that it may or may not receive SF15,000 in the future. The firm thus can hedge this exposure by buying a put option on SF15,000.6. Princess Cruise Company (PCC) purchased a ship from Mitsubishi Heavy Industry. PCC owes Mitsubishi Heavy Industry 500 million yen in one year. The current spot rate is 124 yen per dollar and the one-year forward rate is 110 yen per dollar. The annual interest rate is 5% in Japan and 8% in the U.S. PCC can also buy a one-year call option on yen at the strike price of $.0081 per yen for a premium of .014 cents per yen.(a) Compute the future dollar costs of meeting this obligation using the money market hedgeand the forward hedges.(b) Assuming that the forward exchange rate is the best predictor of the future spot rate, compute the expected future dollar cost of meeting this obligation when the option hedge is used.(c) At what future spot rate do you think PCC may be indifferent between the option and forward hedge?Solution: (a) In the case of forward hedge, the dollar cost will be 500,000,000/110 = $4,545,455. In the case of money market hedge, the future dollar cost will be: 500,000,000(1.08)/(1.05)(124)= $4,147,465.(b) The option premium is: (.014/100)(500,000,000) = $70,000. Its future value will be $70,000(1.08) = $75,600.At the expected future spot rate of $.0091(=1/110), which is higher than the exercise of $.0081, PCC will exercise its call option and buy ¥500,000,000 for $4,050,000 (=500,000,000x.0081).The total expected cost will thus be $4,125,600, which is the sum of $75,600 and $4,050,000.(c) When the option hedge is used, PCC will spend “at most” $4,125,000. On the other hand, when the forward hedging is used, PCC will have to spend $4,545,455 regardless of the future spot rate. This means that the options hedge dominates the forward hedge. At no future spot rate, PCC will be indifferent between forward and options hedges.7. Airbus sold an aircraft, A400, to Delta Airlines, a U.S. company, and billed $30 million payable in six months. Airbus is concerned with the euro proceeds from international sales and would like to control exchange risk. The current spot exchange rate is $1.05/€ and six-month forward exchange rate is $1.10/€ at the moment. Airbus can buy a six-month put option on U.S. dollars with a strike price of €0.95/$ for a premium of €0.02 per U.S. dollar. Currently, six-month interest rate is 2.5% in the euro zone and 3.0% in the U.S.pute the guaranteed euro proceeds from the American sale if Airbus decides to hedgeusing a forward contract.b.If Airbus decides to hedge using money market instruments, what action does Airbusneed to take? What would be the guaranteed euro proceeds from the American sale in this case?c.If Airbus decides to hedge using put options on U.S. dollars, what would be the‘expected’ euro proceeds from the American sale? Assume that Airbus regards the current forward exchange rate as an unbiased predictor of the future spot exchange rate.d.At what future spot exchange rate do you think Airbus will be indifferent between theoption and money market hedge?Solution:a. Airbus will sell $30 million forward for €27,272,727 = ($30,000,000) / ($1.10/€).b. Airbus will borrow the present value of the dollar receivable, i.e., $29,126,214 = $30,000,000/1.03, and then sell the dollar proceeds spot for euros: €27,739,251. This is the euro amount that Airbus is going to keep.c. Since the expected future spot rate is less than the strike price of the put option, i.e., €0.9091< €0.95, Airbus expects to exercise the option and receive €28,500,000 = ($30,000,000)(€0.95/$). This is gross proceeds. Airbus spent €600,000 (=0.02x30,000,000) upfront for the option and its future cost is equal to €615,000 = €600,000 x 1.025. Thus the net euro proceeds from the American sale is €27,885,000, which is the difference between the gross proceeds and the option costs.d. At the indifferent future spot rate, the following will hold:€28,432,732 = S T (30,000,000) - €615,000.Solving for S T, we obtain the “indifference” future spot exchange rate, i.e., €0.9683/$, or $1.0327/€. Note that €28,432,732 is the future value of the proceed s under money market hedging:€28,432,732 = (€27,739,251) (1.025).Suggested solution for Mini Case: Chase Options, Inc.[See Chapter 13 for the case text]Chase Options, Inc.Hedging Foreign Currency Exposure Through Currency OptionsHarvey A. PoniachekI. Case SummaryThis case reviews the foreign exchange options market and hedging. It presents various international transactions that require currency options hedging strategies by the corporations involved. Seven transactions under a variety of circumstances are introduced that require hedging by currency options. The transactions involve hedging of dividend remittances, portfolio investment exposure, and strategic economic competitiveness. Market quotations are provided for options (and options hedging ratios), forwards, and interest rates for various maturities.II. Case Objective.The case introduces the student to the principles of currency options market and hedging strategies. The transactions are of various types that often confront companies that are involved in extensive international business or multinational corporations. The case induces students to acquire hands-on experience in addressing specific exposure and hedging concerns, including how to apply various market quotations, which hedging strategy is most suitable, and how to address exposure in foreign currency through cross hedging policies.III. Proposed Assignment Solution1. The company expects DM100 million in repatriated profits, and does not want the DM/$ exchange rate at which they convert those profits to rise above 1.70. They can hedge this exposure using DM put options with a strike price of 1.70. If the spot rate rises above 1.70, they can exercise the option, while if that rate falls they can enjoy additionalprofits from favorable exchange rate movements.To purchase the options would require an up-front premium of:DM 100,000,000 x 0.0164 = DM 1,640,000.With a strike price of 1.70 DM/$, this would assure the U.S. company of receiving at least:DM 100,000,000 – DM 1,640,000 x (1 + 0.085106 x 272/360)= DM 98,254,544/1.70 DM/$ = $57,796,791by exercising the option if the DM depreciated. Note that the proceeds from the repatriated profits are reduced by the premium paid, which is further adjusted by the interest foregone on this amount.However, if the DM were to appreciate relative to the dollar, the company would allow the option to expire, and enjoy greater dollar proceeds from this increase.Should forward contracts be used to hedge this exposure, the proceeds received would be: DM100,000,000/1.6725 DM/$ = $59,790,732,regardless of the movement of the DM/$ exchange rate. While this amount is almost $2 million more than that realized using option hedges above, there is no flexibility regarding the exercise date; if this date differs from that at which the repatriate profits are available, the company may be exposed to additional further current exposure. Further, there is no opportunity to enjoy any appreciation in the DM.If the company were to buy DM puts as above, and sell an equivalent amount in calls with strike price 1.647, the premium paid would be exactly offset by the premium received. This would assure that the exchange rate realized would fall between 1.647 and 1.700. If the rate rises above 1.700, the company will exercise its put option, and if it fell below 1.647, the other party would use its call; for any rate in between, both options wouldexpire worthless. The proceeds realized would then fall between:DM 100,00,000/1.647 DM/$ = $60,716,454andDM 100,000,000/1.700 DM/$ = $58,823,529.This would allow the company some upside potential, while guaranteeing proceeds at least $1 million greater than the minimum for simply buying a put as above.Buy/Sell OptionsDM/$Spot Put Payoff “Put”ProfitsCallPayoff“Call”Profits Net Profit1.60(1,742,846)01,742,84660,716,45460,716,4541.61(1,742,846)01,742,84660,716,45460,716,4541.62(1,742,846)01,742,84660,716,45460,716,454 1.63(1,742,846)01,742,84660,716,45460,716,4541.64(1,742,846)01,742,84660,716,45460,716,4541.65(1,742,846)60,606,0611,742,846060,606,061 1.66(1,742,846)60,240,9641,742,846060,240,9641.67(1,742,846)59,880,241,742,846059,880,240 1.68(1,742,846)59,523,811,742,846059,523,8101.69(1,742,846)59,171,591,742,846059,171,59881,742,846058,823,529 1.70(1,742,846)58,823,5291.71(1,742,846)58,823,521,742,846058,823,52991,742,846058,823,529 1.72(1,742,846)58,823,5291.73(1,742,846)58,823,521,742,846058,823,52991.74(1,742,846)58,823,521,742,846058,823,52991.75(1,742,846)58,823,521,742,846058,823,52991,742,846058,823,529 1.76(1,742,846)58,823,5291,742,846058,823,529 1.77(1,742,846)58,823,5291,742,846058,823,529 1.78(1,742,846)58,823,5291,742,846058,823,529 1.79(1,742,846)58,823,5291,742,846058,823,529 1.80(1,742,846)58,823,5291,742,846058,823,529 1.81(1,742,846)58,823,5291.82(1,742,846)58,823,521,742,846058,823,52991.83(1,742,846)58,823,521,742,846058,823,5291.84(1,742,846)58,823,521,742,846058,823,52991,742,846058,823,529 1.85(1,742,846)58,823,529Since the firm believes that there is a good chance that the pound sterling will weaken, locking them into a forward contract would not be appropriate, because they would lose the opportunity to profit from this weakening. Their hedge strategy should follow for an upside potential to match their viewpoint. Therefore, they should purchase sterling call options, paying a premium of:5,000,000 STG x 0.0176 = 88,000 STG.If the dollar strengthens against the pound, the firm allows the option to expire, and buys sterling in the spot market at a cheaper price than they would have paid for a forward contract; otherwise, the sterling calls protect against unfavorable depreciation of the dollar.Because the fund manager is uncertain when he will sell the bonds, he requires a hedge which will allow flexibility as to the exercise date. Thus, options are the best instrument for him to use. He can buy A$ puts to lock in a floor of 0.72 A$/$. Since he is willing to forego any further currency appreciation, he can sell A$ calls with a strike price of 0.8025 A$/$ to defray the cost of his hedge (in fact he earns a net premium of A$ 100,000,000 x (0.007234 –0.007211) = A$ 2,300), while knowing that he can’t receive less than 0.72 A$/$ when redeeming his investment, and can benefit from a small appreciation of the A$.Example #3:Problem: Hedge principal denominated in A$ into US$. Forgo upside potential to buy floor protection.I. Hedge by writing calls and buying puts1) Write calls for $/A$ @ 0.8025Buy puts for $/A$ @ 0.72# contracts needed = Principal in A$/Contract size100,000,000A$/100,000 A$ = 1002) Revenue from sale of calls = (# contracts)(size of contract)(premium)$75,573 = (100)(100,000 A$)(.007234 $/A$)(1 + .0825 195/360)3) Total cost of puts = (# contracts)(size of contract)(premium)$75,332 = (100)(100,000 A$)(.007211 $/A$)(1 + .0825 195/360) 4) Put payoffIf spot falls below 0.72, fund manager will exercise putIf spot rises above 0.72, fund manager will let put expire5) Call payoffIf spot rises above .8025, call will be exercised If spot falls below .8025, call will expire6) Net payoffSee following Table for net payoffAustralian Dollar Bond HedgeStrikePrice Put Payoff “Put”PrincipalCallPayoff“Call”Principal Net Profit0.60(75,332)72,000,0075,573072,000,2410.61(75,332)72,000,0075,573072,000,2410.62(75,332)72,000,0075,573072,000,2410.63(75,332)72,000,0075,573072,000,2410.64(75,332)72,000,0075,573072,000,2410.65(75,332)72,000,0075,573072,000,2410.66(75,332)72,000,0075,573072,000,2410.67(75,332)72,000,0075,573072,000,2410.68(75,332)72,000,0075,573072,000,2410.69(75,332)72,000,0075,573072,000,2410.70(75,332)72,000,0075,573072,000,2410.71(75,332)72,000,0075,573072,000,2410.72(75,332)72,000,0075,573072,000,2410.73(75,332)73,000,0075,573073,000,2410.74(75,332)74,000,0075,573074,000,2410.75(75,332)75,000,0075,573075,000,2410.76(75,332)76,000,0075,573076,000,24175,573077,000,2410.77(75,332)77,000,000.78(75,332)78,000,0075,573078,000,24175,573079,000,2410.79(75,332)79,000,000.80(75,332)80,000,0075,573080,000,24180,250,2410.81(75,332)075,57380,250,000.82(75,332)075,57380,250,0080,250,24180,250,2410.83(75,332)075,57380,250,000.84(75,332)075,57380,250,0080,250,24180,250,2410.85(75,332)075,57380,250,004. The German company is bidding on a contract which they cannot be certain of winning. Thus, the need to execute a currency transaction is similarly uncertain, and using a forward or futures as a hedge is inappropriate, because it would force them to perform even if they do not win the contract.Using a sterling put option as a hedge for this transaction makes the most sense. For a premium of:12 million STG x 0.0161 = 193,200 STG,they can assure themselves that adverse movements in the pound sterling exchange rate will not diminish the profitability of the project (and hence the feasibility of their bid),while at the same time allowing the potential for gains from sterling appreciation.5. Since AMC in concerned about the adverse effects that a strengthening of the dollar would have on its business, we need to create a situation in which it will profit from such an appreciation. Purchasing a yen put or a dollar call will achieve this objective. The data in Exhibit 1, row 7 represent a 10 percent appreciation of the dollar (128.15 strike vs. 116.5 forward rate) and can be used to hedge against a similar appreciation of the dollar.For every million yen of hedging, the cost would be:Yen 100,000,000 x 0.000127 = 127 Yen.To determine the breakeven point, we need to compute the value of this option if the dollar appreciated 10 percent (spot rose to 128.15), and subtract from it the premium we paid. This profit would be compared w ith the profit earned on five to 10 percent of AMC’s sales (which would be lost as a result of the dollar appreciation). The number of options to be purchased which would equalize these two quantities would represent the breakeven point.Example #5:Hedge the economic cost of the depreciating Yen to AMC.If we assume that AMC sales fall in direct proportion to depreciation in the yen (i.e., a 10 percent decline in yen and 10 percent decline in sales), then we can hedge the full value of AMC’s sales. I hav e assumed $100 million in sales.1) Buy yen puts# contracts needed = Expected Sales *Current ¥/$ Rate / Contract size9600 = ($100,000,000)(120¥/$) / ¥1,250,0002) Total Cost = (# contracts)(contract size)(premium)$1,524,000 = (9600)( ¥1,250,000)($0.0001275/¥)3) Floor rate = Exercise – Premium128.1499¥/$ = 128.15¥/$ - $1,524,000/12,000,000,000¥4) The payoff changes depending on the level of the ¥/$ rate. The following tablesummarizes the payoffs. An equilibrium is reached when the spot rate equals the floor rate.AMC ProfitabilityYen/$ Spot Put Payoff Sales Net Profit 120(1,524,990)100,000,00098,475,010 121(1,524,990)99,173,66497,648,564 122(1,524,990)98,360,65696,835,666 123(1,524,990)97,560,97686,035,986 124(1,524,990)96,774,19495,249,204 125(1,524,990)96,000,00094,475,010 126(1,524,990)95,238,09593,713,105 127(847,829)94,488,18993,640,360 128(109,640)93,750,00093,640,360 129617,10493,023,25693,640,360 1301,332,66892,307,69293,640,360 1312,037,30791,603,05393,640,360 1322,731,26990,909,09193,640,360 1333,414,79690,225,66493,640,360 1344,088,12289,552,23993,640,360 1354,751,43188,888,88993,640,360 1365,405,06688,235,29493,640,360 1376,049,11887,591,24193,640,360 1386,683,83986,966,52293,640,360 1397,308,42586,330,93693,640,360 1407,926,07585,714,28693,640,360 1418,533,97785,106,38393,640,360 1429,133,31884,507,04293,640,360 1439,724,27683,916,08493,640,360 14410,307,02783,333,33393,640,360 14510,881,74082,758,62193,640,360 14611,448,57982,191,78193,640,360。
国际财务管理（英文版）课后习题答案8
IM-1 CHAPTER 7 FUTURES AND OPTIONS ON FOREIGN EXCHANGESUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTER QUESTIONS AND PROBLEMSQUESTIONS 1. Explain Explain the the the basic basic basic differences differences differences between between between the the the operation operation operation of of of a a a currency currency currency forward forward forward market market market and and and a a a futures futures market. Answer: The The forward forward forward market market market is is is an an an OTC OTC OTC market market market where where where the the the forward forward forward contract contract contract for for for purchase purchase purchase or or or sale sale sale of of foreign currency is tailor-made between the client and its international bank. No money changes hands until the maturity date of the contract when delivery and receipt are typically made. A futures contract is an an exchange-traded exchange-traded exchange-traded instrument instrument instrument with with with standardized standardized standardized features features features specifying specifying specifying contract contract contract size size size and and and delivery delivery delivery date. date. Futures Futures contracts contracts contracts are are are marked-to-market marked-to-market marked-to-market daily daily daily to to to reflect reflect reflect changes changes changes in in in the the the settlement settlement settlement price. price. Delivery Delivery is is seldom made in a futures market. Rather a reversing trade is made to close out a long or short position.2. In In order order order for for for a a a derivatives derivatives derivatives market market market to to to function function function most most most efficiently, efficiently, two two types types types of of of economic economic economic agents agents agents are are needed: hedgers and speculators. Explain. Answer: Two Two types types types of of of market market market participants participants participants are are are necessary necessary necessary for for for the the the efficient efficient efficient operation operation operation of of of a a a derivatives derivatives market: speculators and h edgers hedgers . A speculator attempts to profit from a change in the futures price. To To do do do this, this, this, the the the speculator speculator speculator will will will take take take a a a long long long or or or short short short position position position in in in a a a futures futures futures contract contract contract depending depending depending upon upon upon his his expectations of future price movement. A hedger, on-the-other-hand, desires to avoid price variation by locking in a purchase price of the underlying asset through a long position in a futures contract or a sales price through a short position. In effect, the hedger passes off the risk of price variation to the speculator who is better able, or at least more willing, to bear this risk. 3. Why are most futures positions closed out through a reversing trade rather than held to delivery? Answer: In forward markets, approximately 90 percent of all contracts that are initially established result i n the short making delivery to the long of the asset underlying the contract. This is natural because the terms of forward forward contracts contracts contracts are are are tailor-made tailor-made between the the long long long and and and short. short. By By contrast, contrast, only only about about about one one one percent percent percent of of currency futures contracts result in delivery. While futures contracts are useful for speculation and hedgi n g , their standardized delivery delivery dates dates dates make them make them unlikely unlikely to to to correspond correspond correspond to the actual future to the actual future dates when foreign IM-2 exchange exchange transactions transactions transactions will will will occur. occur. Thus, Thus, they they they are are are generally generally generally closed closed closed out out out in in in a a a reversing reversing reversing trade. trade. In In fact, fact, fact, the the commission commission that that that buyers buyers buyers and and and sellers sellers sellers pay to pay to transact transact in in in the the the futures futures futures market market market is a single is a single a mount amount amount that covers that covers the round-trip transactions of initiating and closing out the position. 4. How can the FX futures market be used for price discovery? Answer: To the extent that FX forward prices are an unbiased predictor of future spot exchange rates, the market anticipates whether one currency will appreciate or depreciate versus another. Because FXfutures contracts trade in an expiration cycle, different contracts expire at different periodic dates into the future. The pattern of the prices of these cont racts provides information as to the market’s current belief about about the the the relative relative relative future future future value value value of of of one one one currency currency currency versus versus versus another at another at the the scheduled scheduled scheduled expiration expiration expiration dates dates dates of of of the the contracts. One will generally generally see see see a a a steadily steadily steadily appreciating appreciating appreciating or or or depreciating depreciating depreciating pattern; pattern; pattern; however, however, however, it it it may may may be be mixed mixed at at at times. times. Thus, Thus, the the the futures futures futures market market market is is is useful useful useful for for price discovery , , i.e., i.e., i.e., obtaining obtaining obtaining the the the market’s market’s forecast of the spot exchange rate at different future dates. 5. What is the major difference in the obligation of one with a long position in a futures (or forward) contract in comparison to an options contract? Answer: Answer: A A A futures futures futures (or (or (or forward) forward) forward) contract contract contract is is is a a a vehicle vehicle vehicle for for for buying buying buying or or or selling selling selling a a a stated stated stated amount amount amount of of of foreign foreign exchange at a stated price per unit at a specified time in the future. If the long holds the contract to the delivery date, he pays the effective contractual futures (or forward) price, regardless of whether it is an advantageous advantageous price price price in in in comparison comparison comparison to to to the the the spot spot spot price price price at at at the the the delivery delivery delivery date. date. By By contrast, contrast, contrast, an an an option option option is is is a a contract giving the long the right to buy or sell a given quantity of an asset at a specified price at some time time in in in the the the future, future, future, but but but not enforcing not enforcing any any obligation obligation obligation on on on him him him if if if the the the spot spot spot price price price is is is more more more favorable favorable favorable than than than the the exercise price. Because the option owner does not have to exercise the option if it is to his disadvantage, the option has a price, or premium, whereas no price is paid at inception to enter into a futures (or forward) contract. 6. What is meant by the terminology that an option is in-, at-, or out-of-the-money? Answer: A call (put) option with S t > E (E > S t ) is referred to as trading in-the-money. If S t@ E the option is trading at-the-money. If S t< E (E < S t ) the call (put) option is trading out-of-the-money . IM-3 7. List List the the the arguments (variables) arguments (variables) of of which which which an an an FX call FX call or or put put put option option option model model model price price price is is is a function. a function. How does the call and put premium change with respect to a change in the arguments? Answer: Both call and put options are functions of only six variables: S t , E, r i , r $, Ta nd and s . When all else remains the same, the price of a European FX call (put) option will increase: 1. the larger (smaller) is S , 2. the smaller (larger) is E , 3. the smaller (larger) is r i , 4. the larger (smaller) is r $, 5. the larger (smaller) r $ is relative to r i , and 6. the greater is s . When r $ and r i are not too much different in size, a European FX call and put will increase in price when the option term-to-maturity increases. However, when r $ is very much larger than r i , a European FX call will will increase increase increase in in in price, price, price, but but but the the the put put put premium premium premium will will will decrease, decrease, decrease, when when when the the the option option option term-to-maturity term-to-maturity term-to-maturity increases. increases. The opposite is true when r i is very much greater than r $. For American FX options the analysis is less complicated. Since Since a a a longer longer longer term term term American American American option option option can can can be be be exercised exercised exercised on on on any any any date date date that that that a shorter a shorter term option can be exercised, or a some later date, it follows that the all else remaining the same, the longer term American option will sell at a price at least as large as the shorter term option. IM-4 PROBLEMS 1. Assume Assume today’s today’s today’s settlement settlement settlement price price price on on on a a a CME CME CME EUR EUR EUR futures futures futures contract contract contract is is is $1.3140/EUR. $1.3140/EUR. ou Y ou have have have a a short position in one contract. Your performance bond account currently has a balance of $1,700. The next next three three three days’ days’ days’ settlement settlement settlement prices prices prices are are are $1.3126, $1.3126, $1.3126, $1.3133, $1.3133, $1.3133, and and and $1.3049. $1.3049. Calculate Calculate the the the chan chan changes ges ges in in in the the performance performance bond bond bond account account account from from from daily daily daily marking-to-market marking-to-market and and the the the balance balance balance of of of the the the performance performance performance bond bond account after the third day. Solution: $1,700 + [($1.3140 - $1.3126) + ($1.3126 - $1.3133) + ($1.3133 - $1.3049)] x EUR125,000 = $2,837.50, where EUR125,000 is the contractual size of one EUR contract. 2. Do problem 1 again assuming you have a long position in the futures contract. Solution: $1,700 + [($1.3126 - $1.3140) + ($1.3133 - $1.3126) + ($1.3049 - $1.3133)] x EUR125,000 = $562.50, where EUR125,000 is the contractual size of one EUR contract. With only $562.50 in your performance bond account, you would experience a a margin margin call requesting that additional funds be added to your performance bond account to bring the balance back up to the initial performance bond level. 3. Using Using the the the quotations quotations quotations in in in Exhibit Exhibit Exhibit 7.3, 7.3, 7.3, calculate calculate calculate the the the face face face value value value of of of the the the open open open interest interest interest in in in the the the June June June 2005 2005 Swiss franc futures contract. Solution: 2,101 contracts x SF125,000 = SF262,625,000.where SF125,000 is the contractual size of one SF contract. 4. Using the quotations in Exhibit 7.3, note that the June 2005 Mexican peso futures contract has a price of of $0.08845. $0.08845. ou Y ou believe believe believe the the the spot spot spot price price price in in in June will June will be be $0.09500. $0.09500. What speculative position position would would you enter into to attempt to profit from your beliefs? Calculate your anticipated profits, assuming you take a position i n three contracts. in three contracts. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes? September 20, 1999 December 20, 1999 March 20, 2000 ·Borrow $100 million at ·Pay interest for first three ·Pay back principal September 20 LIBOR + 200 months plus interest basis points (bps) ·Roll loan over at ·September 20 LIBOR = 7% December 20 LIBOR + 200 bps IM-6 Loan First loan payment (9%) Second payment initiated and futures contract expires and principal ¯ ¯ ¯· · ·9/20/99 12/20/99 3/20/00 a. Formulate Johnson’s September 20 floating -to-fixed-rate strategy using the Eurodollar future contracts discussed discussed in in in the the the text text text above. above. Show Show that that that this this this strategy strategy strategy would would would result result result in in in a a a fixed-rate fixed-rate fixed-rate loan, loan, loan, assuming assuming assuming an an increase in the LIBOR rate to 7.8 percent by December 20, which remains at 7.8 percent through March 20. Show all calculations. Johnson Johnson is is is considering considering considering a a a 12-month 12-month 12-month loan loan loan as as as an an an alternative. alternative. This This approach approach approach will will will result result result in in in two two two additional additional uncertain cash flows, as follows: Loan First Second Third Fourth payment initiated payment (9%) payment payment and principal ¯ ¯ ¯ ¯¯· · · · ·9/20/99 12/20/99 3/20/00 6/20/00 9/20/00 b. Describe the strip hedge that Johnson could use and explain how it hedges the 12-month loan (specify number of contracts). No calculations are needed. CFA Guideline Answer a. The basis point value (BPV) of a Eurodollar futures contract can be found by substituting the contract specifications into the following money market relationship: BPV FUT = Change in V alue = (face value) x (days to maturity / 360) x (change in yield)= ($1 million) x (90 / 360) x (.0001) = $25 The number of contract, N, can be found by: N = (BPV spot) / (BPV futures) = ($2,500) / ($25) = 100 OR IM-7 N = (value of spot position) / (face value of each futures contract) = ($100 million) / ($1 million) = 100 OR N = (value of spot position) / (value of futures position) = ($100,000,000) / ($981,750) where value of futures position = $1,000,000 x [1 – (0.073 / 4)] » 102 contracts Therefore on September 20, Johnson would sell 100 (or 102) December Eurodollar futures contracts at the 7.3 percent yield. The implied LIBOR rate in December is 7.3 percent as indicated by the December Eurofutures discount yield of 7.3 percent. Thus a borrowing rate of 9.3 percent (7.3 percent + 200 basis points) can be locked in if the hedge is correctly implemented. A rise in the rate to 7.8 percent represents a 50 basis point (bp) i ncrease over the implied LIBOR rate. increase over the implied LIBOR rate. For a 50 basis point increase in LIBOR, the cash flow on the short futures position is: = ($25 per basis point per contract) x 50 bp x 100 contracts = $125,000. However, the cash flow on the floating rate liability is: = -0.098 x ($100,000,000 / 4) = - $2,450,000. Combining Combining the the the cash cash cash flow flow flow from from from the the the hedge hedge hedge with with with the the the cash cash cash flow flow flow from from from the the the loan loan loan results results results in in in a a a net net net outflow outflow outflow of of $2,325,000, which translates into an annual rate of 9.3 percent: = ($2,325,000 x 4) / $100,000,000 = 0.093 This is precisely the implied borrowing rate that Johnson locked in on September 20. Regardless of the LIBOR rate on December 20, the net cash outflow will be $2,325,000, which translates into an annualized rate of 9.3 percent. Consequently, the floating rate liability has been converted to a fixed rate liability in the sense that the interest rate uncertainty associated with the March 20 payment (using the December 20 contract) has been removed as of September 20. b. In a strip hedge, Johnson would sell 100 December futures (for the March payment), 100 March futures (for (for the the the June June June payment), payment), payment), and and and 100 100 100 June futures (for June futures (for t he the the September September September payment). payment). The The objective objective objective is is is to to to hedge hedge each each interest interest interest rate rate rate payment payment payment separately separately separately using using using the the the appropriate appropriate appropriate number number number of of of contracts. contracts. The The problem problem problem is is is the the same as in Part A except here three cash flows are subject to rising rates and a strip of futures is used to Strategy A Strategy BContract Month (contracts) (contracts)September 1998 300 100 December 1998 0 100 March 1999 0 100 a. Explain why strategy B is a more effective hedge than strategy A when the yield curve IM-9 a. Strategy B’s SuperiorityStrategy B is a strip hedge that is constructed by selling (shorting) 100 futures contracts maturing in each of of the the the next next next three three three quarters. quarters. With With the the the strip strip strip hedge hedge hedge in in in place, place, place, each each each quarter quarter quarter of of of the the the coming coming coming year year year is is is hedged hedged against shifts in interest rates for that quarter. The reason Strategy B will be a more effective hedge than Strategy Strategy A A A for for for Jacob Jacob Jacob Bower Bower Bower is is is that that that Strategy Strategy Strategy B B B is is is likely likely likely to to to work work work well well well whether whether whether a a a parallel parallel parallel shift shift shift or or or a a nonparallel shift occurs over the one-year term of Bower’s liability. That is, regardless of what happens to the term structure, Strategy B structures the futures hedge so that the rates reflected by the Eurodollar futures cash price match the applicable rates for the underlying liability-the 90day LIBOR-based rate on Bower’s Bower’s liability. liability. The The same same same is is is not not not true true true for for for Strategy Strategy Strategy A. A. Because Because Jacob Jacob Jacob Bower’s Bower’s Bower’s liability liability liability carries carries carries a a floating interest rate that resets quarterly, he needs a strategy that provides a series of three-month hedges. Strategy A will need to be restructured when the three-month September contract expires. In particular, if the yield curve twists upward (futures yields rise more for distant expirations than for near expirations), Strategy A will produce inferior hedge results. b. Scenario in Which Strategy A is Superior Strategy Strategy A A A is is is a a a stack stack stack hedge strategy hedge strategy that that initially initially initially involves involves involves selling selling selling (shorting) (shorting) (shorting) 300 300 300 September September September contracts. contracts. Strategy Strategy A A A is is is rarely rarely rarely better better better than than than Strategy Strategy Strategy B B B as as as a a a hedging hedging hedging or or or risk-reduction risk-reduction risk-reduction strategy. strategy. Only Only from from from the the perspective of favorable cash flows is Strategy A better than Strategy B. Such cash flows occur only in certain certain interest interest interest rate rate rate scenarios. scenarios. For For example example example Strategy Strategy Strategy A A A will will will work work work as as as well well well as as as Strategy Strategy Strategy B B B for for for Bower’s Bower’s liability liability if if if interest interest interest rates rates rates (instantaneously) (instantaneously) (instantaneously) change change change in in in parallel parallel parallel fashion. fashion. Another Another interest interest interest rate rate rate scenario scenario where where Strategy Strategy Strategy A A A outperforms outperforms outperforms Strategy Strategy Strategy B B B is is is one one one in in in which which which the the the yield yield yield curve curve curve rises rises rises but but but with with with a a a twist twist twist so so so that that futures futures yields yields yields rise rise rise more more more for for for near near near expirations expirations than than for for for distant distant distant expirations. expirations. Upon Upon expiration expiration expiration of of of the the September contract, Bower will have to roll out his hedge by selling 200 December contracts to hedge the remaining interest payments. This action will have the effect that the cash flow from Strategy A will be larger than the cash flow from Strategy B because the appreciation on the 300 short September futures contracts will be larger than the cumulative appreciation in the 300 contracts shorted in Strategy B (i.e., 100 100 September, September, September, 100 100 100 December, December, December, and and and 100 100 100 March). March). Consequently, Consequently, the the the cash cash cash flow flow flow from from from Strategy Strategy Strategy A A A will will more than offset the increase in the interest payment on the liability, whereas the cash flow from Strategy B will exactly offset the increase in the interest payment on the liability. 8. Use Use the the the quotations quotations quotations in in in Exhibit Exhibit Exhibit 7.7 7.7 7.7 to to to calculate calculate calculate the the the intrinsic intrinsic intrinsic value value value and and and the the the time time time value value value of of of the the the 97 97 September Japanese yen American call and put options.Solution: Premium - Intrinsic V alue = Time V alue IM-10 97 Sep Call 2.08 - Max[95.80 – 97.00 = - 1.20, 0] = 2.08 cents per 100 yen 97 Sep Put 2.47 - Max[97.00 – 95.80 = 1.20, 0] = 1.27 cents per 100 yen 9. Assume Assume spot spot spot Swiss Swiss Swiss franc franc franc is is is $0.7000 $0.7000 $0.7000 and and and the the the six-month six-month six-month forward forward forward rate rate rate is is is $0.6950. $0.6950. What What is is is the the minimum price that a six-month American call option with a striking price of $0.6800 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3 ½ percent. Solution: Note to Instructor: A complete solution to this problem relies on the boundary expressions presented in footnote 3 of the text of Chapter 7. C a ³Max [(70 - 68), (69.50 - 68)/(1.0175), 0] ³ Max [ 2, 1.47, 0] = 2 cents 10. Do problem 9 again assuming an American put option instead of a call option.Solution: P a ³Max [(68 - 70), (68 - 69.50)/(1.0175), 0] ³Max [ -2, -1.47, 0] = 0 cents 11. Use the European option-pricing models developed in the chapter to value the call of problem 9 and the the put put put of of of problem problem problem 10. 10. Assume Assume the the the annualized annualized annualized volatility volatility volatility of of of the the the Swiss Swiss Swiss franc franc franc is is is 14.2 14.2 14.2 percent. percent. This problem can be solved using the FXOPM.xls spreadsheet. Solution: d 1 = [ln (69.50/68) + .5(.142)2(.50)]/(.142)Ö.50 = .2675 d 2 = d 1 - .142Ö.50 = .2765 - .1004 = .1671 N(d 1) = .6055 N(d 2) = .5664 N(-d 1) = .3945 N(-d 2) = .4336 C e = [69.50(.6055) - 68(.5664)]e -(.035)(.50) = 3.51 cents P e = [68(.4336) - 69.50(.3945)]e -(.035)(.50) = 2.03 cents 12. Use the binomial option-pricing model developed in the chapter to value the call of problem 9. IM-11 The volatility of the Swiss franc is 14.2 percent. Solution: The spot rate at T will be either 77.39¢ = 70.00¢(1.1056) or 63.32¢(1.1056) or 63.32¢ = 70.00¢ = 70.00¢(.9045), where (.9045), where u = e .142Ö.50 = = 1.1056 1.1056 1.1056 and and d = 1/u = .9045. At At the the the exercise exercise exercise price price price of of E = = 68, 68, 68, the the the option option option will will will only only only be be exercised at time T if the Swiss franc appreciates; its exercise value would be C uT = 9.39¢9.39¢ = 77.39¢ = 77.39¢ - - 68. If the Swiss franc depreciates it would not be rational to exercise the option; its value would be C dT = 0. The hedge ratio is h = (9.39 – 0)/(77.39 – 63.32) = .6674. Thus, the call premium is: C 0 = Max {[69.50(.6674) {[69.50(.6674) –– 68((70/68)(.6674 – 1) +1)]/(1.0175), 70 – 68} = Max [1.64, 2] = 2 cents per SF. IM-12 MINI CASE: THE OPTIONS SPECULA TOR A A speculator speculator speculator is is is considering considering considering the the the purchase purchase purchase of of of five five five three-month three-month three-month Japanese Japanese Japanese yen yen yen call call call options options options with with with a a striking price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents cents per per per 100 100 100 yen yen yen and and and the the the 90-day 90-day 90-day forward forward forward rate rate rate is is is 95.71 95.71 95.71 cents. cents. cents. The The The speculator speculator speculator believes believes believes the the the yen yen yen will will appreciate to $1.00 per 100 yen over the next three months. As the speculator’s assistant, you have been asked to prepare the following: 1. Graph the call option cash flow schedule. 2. Determine the speculator’s profit if the yen appreciates to $1.00/100 yen.3. Determine the speculator’s profit if the yen only appreciates to the forward rate.4. Determine the future spot price at which the speculator will only break even. Suggested Solution to the Options Speculator: 1. +-2. (5 x ¥6,250,000) x [(100 - 96) - 1.35]/10000 = $8,281.25. 6,250,000) x [(100 - 96) - 1.35]/10000 = $8,281.25. 3. Since the option expires out-of-the-money, the speculator will let the option expire worthless. He will only lose the option premium. 4. S T = E + C = 96 + 1.35 = 97.35 cents per 100 yen. 。
(完整word版)国际财务管理(英文版)课后习题答案8
CHAPTER 7 FUTURES AND OPTIONS ON FOREIGN EXCHANGESUGGESTED ANSWERS AND SOLUTIONS TO END-OF-CHAPTERQUESTIONS AND PROBLEMSQUESTIONS1. Explain the basic differences between the operation of a currency forward market and a futures market.Answer: The forward market is an OTC market where the forward contract for purchase or sale of foreign currency is tailor-made between the client and its international bank. No money changes hands until the maturity date of the contract when delivery and receipt are typically made. A futures contract is an exchange-traded instrument with standardized features specifying contract size and delivery date. Futures contracts are marked-to-market daily to reflect changes in the settlement price. Delivery is seldom made in a futures market. Rather a reversing trade is made to close out a long or short position.2. In order for a derivatives market to function most efficiently, two types of economic agents are needed: hedgers and speculators. Explain.Answer: Two types of market participants are necessary for the efficient operation of a derivatives market: speculators and hedgers. A speculator attempts to profit from a change in the futures price. To do this, the speculator will take a long or short position in a futures contract depending upon his expectations of future price movement. A hedger, on-the-other-hand, desires to avoid price variation by locking in a purchase price of the underlying asset through a long position in a futures contract or a sales price through a short position. In effect, the hedger passes off the risk of price variation to the speculator who is better able, or at least more willing, to bear this risk.3. Why are most futures positions closed out through a reversing trade rather than held to delivery?Answer: In forward markets, approximately 90 percent of all contracts that are initially established result in the short making delivery to the long of the asset underlying the contract. This is natural because the terms of forward contracts are tailor-made between the long and short. By contrast, only about one percent of currency futures contracts result in delivery. While futures contracts are useful for speculation and hedging, their standardized delivery dates make them unlikely to correspond to the actual future dates when foreignexchange transactions will occur. Thus, they are generally closed out in a reversing trade. In fact, the commission that buyers and sellers pay to transact in the futures market is a single amount that covers the round-trip transactions of initiating and closing out the position.4. How can the FX futures market be used for price discovery?Answer: To the extent that FX forward prices are an unbiased predictor of future spot exchange rates, the market anticipates whether one currency will appreciate or depreciate versus another. Because FX futures contracts trade in an expiration cycle, different contracts expire at different periodic dates into the future. The pattern of the prices of these cont racts provides information as to the market’s current belief about the relative future value of one currency versus another at the scheduled expiration dates of the contracts. One will generally see a steadily appreciating or depreciating pattern; however, it may be mixed at times. Thus, the futures market is useful for price discovery, i.e., obtaining the market’s forecast of the spot exchange rate at different future dates.5. What is the major difference in the obligation of one with a long position in a futures (or forward) contract in comparison to an options contract?Answer: A futures (or forward) contract is a vehicle for buying or selling a stated amount of foreign exchange at a stated price per unit at a specified time in the future. If the long holds the contract to the delivery date, he pays the effective contractual futures (or forward) price, regardless of whether it is an advantageous price in comparison to the spot price at the delivery date. By contrast, an option is a contract giving the long the right to buy or sell a given quantity of an asset at a specified price at some time in the future, but not enforcing any obligation on him if the spot price is more favorable than the exercise price. Because the option owner does not have to exercise the option if it is to his disadvantage, the option has a price, or premium, whereas no price is paid at inception to enter into a futures (or forward) contract.6. What is meant by the terminology that an option is in-, at-, or out-of-the-money?Answer: A call (put) option with S t > E (E > S t) is referred to as trading in-the-money. If S t E the option is trading at-the-money. If S t< E (E < S t) the call (put) option is trading out-of-the-money.7. List the arguments (variables) of which an FX call or put option model price is a function. How does the call and put premium change with respect to a change in the arguments?Answer: Both call and put options are functions of only six variables: S t, E, r i, r$, T andσ.When all else remains the same, the price of a European FX call (put) option will increase:1. the larger (smaller) is S,2. the smaller (larger) is E,3. the smaller (larger) is r i,4. the larger (smaller) is r$,5. the larger (smaller) r$ is relative to r i, and6. the greater is σ.When r$ and r i are not too much different in size, a European FX call and put will increase in price when the option term-to-maturity increases. However, when r$ is very much larger than r i, a European FX call will increase in price, but the put premium will decrease, when the option term-to-maturity increases. The opposite is true when r i is very much greater than r$. For American FX options the analysis is less complicated. Since a longer term American option can be exercised on any date that a shorter term option can be exercised, or a some later date, it follows that the all else remaining the same, the longer term American option will sell at a price at least as large as the shorter term option.PROBLEMS1. Assume today’s settlement price on a CME EUR futures contract is $1.3140/EUR. You have a short position in one contract. Your performance bond account currently has a balance of $1,700. The next three days’ settlement prices are $1.3126, $1.3133, and $1.3049. Calculate the chan ges in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day.Solution: $1,700 + [($1.3140 - $1.3126) + ($1.3126 - $1.3133)+ ($1.3133 - $1.3049)] x EUR125,000 = $2,837.50,where EUR125,000 is the contractual size of one EUR contract.2. Do problem 1 again assuming you have a long position in the futures contract.Solution: $1,700 + [($1.3126 - $1.3140) + ($1.3133 - $1.3126) + ($1.3049 - $1.3133)] x EUR125,000 = $562.50,where EUR125,000 is the contractual size of one EUR contract.With only $562.50 in your performance bond account, you would experience a margin call requesting that additional funds be added to your performance bond account to bring the balance back up to the initial performance bond level.3. Using the quotations in Exhibit 7.3, calculate the face value of the open interest in the June 2005 Swiss franc futures contract.Solution: 2,101 contracts x SF125,000 = SF262,625,000.where SF125,000 is the contractual size of one SF contract.4. Using the quotations in Exhibit 7.3, note that the June 2005 Mexican peso futures contract has a price of $0.08845. You believe the spot price in June will be $0.09500. What speculative position would you enter into to attempt to profit from your beliefs? Calculate your anticipated profits, assuming you take a position in three contracts. What is the size of your profit (loss) if the futures price is indeed an unbiased predictor of the future spot price and this price materializes?Solution: If you expect the Mexican peso to rise from $0.08845 to $0.09500, you would take a long position in futures since the futures price of $0.08845 is less than your expected spot price.Your anticipated profit from a long position in three contracts is: 3 x ($0.09500 - $0.08845) x MP500,000 = $9,825.00, where MP500,000 is the contractual size of one MP contract.If the futures price is an unbiased predictor of the expected spot price, the expected spot price is the futures price of $0.08845/MP. If this spot price materializes, you will not have any profits or losses from your short position in three futures contracts: 3 x ($0.08845 - $0.08845) x MP500,000 = 0.5. Do problem 4 again assuming you believe the June 2005 spot price will be $0.08500.Solution: If you expect the Mexican peso to depreciate from $0.08845 to $0.07500, you would take a short position in futures since the futures price of $0.08845 is greater than your expected spot price.Your anticipated profit from a short position in three contracts is: 3 x ($0.08845 - $0.07500) x MP500,000 = $20,175.00.If the futures price is an unbiased predictor of the future spot price and this price materializes, you will not profit or lose from your long futures position.6. George Johnson is considering a possible six-month $100 million LIBOR-based, floating-rate bank loan to fund a project at terms shown in the table below. Johnson fears a possible rise in the LIBOR rate by December and wants to use the December Eurodollar futures contract to hedge this risk. The contract expires December 20, 1999, has a US$ 1 million contract size, and a discount yield of7.3 percent.Johnson will ignore the cash flow implications of marking to market, initial margin requirements, and any timing mismatch between exchange-traded futures contract cash flows and the interest payments due in March.Loan TermsSeptember 20, 1999 December 20, 1999 March 20, 2000 •Borrow $100 million at •Pay interest for first three •Pay back principal September 20 LIBOR + 200 months plus interestbasis points (bps) •Roll loan over at•September 20 LIBOR = 7% December 20 LIBOR +200 bpsLoan First loan payment (9%) Second paymentinitiated and futures contract expires and principal↓↓↓•••9/20/99 12/20/99 3/20/00a. Formulate Johnson’s September 20 floating-to-fixed-rate strategy using the Eurodollar future contracts discussed in the text above. Show that this strategy would result in a fixed-rate loan, assuming an increase in the LIBOR rate to 7.8 percent by December 20, which remains at 7.8 percent through March 20. Show all calculations.Johnson is considering a 12-month loan as an alternative. This approach will result in two additional uncertain cash flows, as follows:Loan First Second Third Fourth payment initiated payment (9%) payment payment and principal ↓↓↓↓↓•••••9/20/99 12/20/99 3/20/00 6/20/00 9/20/00 b. Describe the strip hedge that Johnson could use and explain how it hedges the 12-month loan (specify number of contracts). No calculations are needed.CFA Guideline Answera. The basis point value (BPV) of a Eurodollar futures contract can be found by substituting the contract specifications into the following money market relationship:BPV FUT = Change in Value = (face value) x (days to maturity / 360) x (change in yield)= ($1 million) x (90 / 360) x (.0001)= $25The number of contract, N, can be found by:N = (BPV spot) / (BPV futures)= ($2,500) / ($25)= 100ORN = (value of spot position) / (face value of each futures contract)= ($100 million) / ($1 million)= 100ORN = (value of spot position) / (value of futures position)= ($100,000,000) / ($981,750)where value of futures position = $1,000,000 x [1 – (0.073 / 4)]102 contractsTherefore on September 20, Johnson would sell 100 (or 102) December Eurodollar futures contracts at the 7.3 percent yield. The implied LIBOR rate in December is 7.3 percent as indicated by the December Eurofutures discount yield of 7.3 percent. Thus a borrowing rate of 9.3 percent (7.3 percent + 200 basis points) can be locked in if the hedge is correctly implemented.A rise in the rate to 7.8 percent represents a 50 basis point (bp) increase over the implied LIBOR rate. For a 50 basis point increase in LIBOR, the cash flow on the short futures position is:= ($25 per basis point per contract) x 50 bp x 100 contracts= $125,000.However, the cash flow on the floating rate liability is:= -0.098 x ($100,000,000 / 4)= - $2,450,000.Combining the cash flow from the hedge with the cash flow from the loan results in a net outflow of $2,325,000, which translates into an annual rate of 9.3 percent:= ($2,325,000 x 4) / $100,000,000 = 0.093This is precisely the implied borrowing rate that Johnson locked in on September 20. Regardless of the LIBOR rate on December 20, the net cash outflow will be $2,325,000, which translates into an annualized rate of 9.3 percent. Consequently, the floating rate liability has been converted to a fixed rate liability in the sense that the interest rate uncertainty associated with the March 20 payment (using the December 20 contract) has been removed as of September 20.b. In a strip hedge, Johnson would sell 100 December futures (for the March payment), 100 March futures (for the June payment), and 100 June futures (for the September payment). The objective is to hedge each interest rate payment separately using the appropriate number of contracts. The problem is the same as in Part A except here three cash flows are subject to rising rates and a strip of futures is used tohedge this interest rate risk. This problem is simplified somewhat because the cash flow mismatch between the futures and the loan payment is ignored. Therefore, in order to hedge each cash flow, Johnson simply sells 100 contracts for each payment. The strip hedge transforms the floating rate loan into a strip of fixed rate payments. As was done in Part A, the fixed rates are found by adding 200 basis points to the implied forward LIBOR rate indicated by the discount yield of the three different Eurodollar futures contracts. The fixed payments will be equal when the LIBOR term structure is flat for the first year.7. Jacob Bower has a liability that:•has a principal balance of $100 million on June 30, 1998,•accrues interest quarterly starting on June 30, 1998,•pays interest quarterly,•has a one-year term to maturity, and•calculates interest due based on 90-day LIBOR (the London Interbank OfferedRate).Bower wishes to hedge his remaining interest payments against changes in interest rates.Bower has correctly calculated that he needs to sell (short) 300 Eurodollar futures contracts to accomplish the hedge. He is considering the alternative hedging strategies outlined in the following table.Initial Position (6/30/98) in90-Day LIBOR Eurodollar ContractsStrategy A Strategy BContract Month (contracts) (contracts)September 1998 300 100December 1998 0 100March 1999 0 100a. Explain why strategy B is a more effective hedge than strategy A when the yield curveundergoes an instantaneous nonparallel shift.b. Discuss an interest rate scenario in which strategy A would be superior to strategy B.CFA Guideline Answera. Strategy B’s SuperiorityStrategy B is a strip hedge that is constructed by selling (shorting) 100 futures contracts maturing in each of the next three quarters. With the strip hedge in place, each quarter of the coming year is hedged against shifts in interest rates for that quarter. The reason Strategy B will be a more effective hedge than Strategy A for Jacob Bower is that Strategy B is likely to work well whether a parallel shift or a nonparallel shift occurs over the one-year term of Bower’s liability. That is, regardless of what happens to the term structure, Strategy B structures the futures hedge so that the rates reflected by the Eurodollar futures cash price match the applicable rates for the underlying liability-the 90day LIBOR-based rate on Bower’s liability. The same is not true for Strategy A. Because Jacob Bower’s liability carries a floating interest rate that resets quarterly, he needs a strategy that provides a series of three-month hedges. Strategy A will need to be restructured when the three-month September contract expires. In particular, if the yield curve twists upward (futures yields rise more for distant expirations than for near expirations), Strategy A will produce inferior hedge results.b. Scenario in Which Strategy A is SuperiorStrategy A is a stack hedge strategy that initially involves selling (shorting) 300 September contracts. Strategy A is rarely better than Strategy B as a hedging or risk-reduction strategy. Only from the perspective of favorable cash flows is Strategy A better than Strategy B. Such cash flows occur only in certain interest rate scenarios. For example Strategy A will work as well as Strategy B for Bower’s liability if interest rates (instantaneously) change in parallel fashion. Another interest rate scenario where Strategy A outperforms Strategy B is one in which the yield curve rises but with a twist so that futures yields rise more for near expirations than for distant expirations. Upon expiration of the September contract, Bower will have to roll out his hedge by selling 200 December contracts to hedge the remaining interest payments. This action will have the effect that the cash flow from Strategy A will be larger than the cash flow from Strategy B because the appreciation on the 300 short September futures contracts will be larger than the cumulative appreciation in the 300 contracts shorted in Strategy B (i.e., 100 September, 100 December, and 100 March). Consequently, the cash flow from Strategy A will more than offset the increase in the interest payment on the liability, whereas the cash flow from Strategy B will exactly offset the increase in the interest payment on the liability.8. Use the quotations in Exhibit 7.7 to calculate the intrinsic value and the time value of the 97 September Japanese yen American call and put options.Solution: Premium - Intrinsic Value = Time Value97 Sep Call 2.08 - Max[95.80 – 97.00 = - 1.20, 0] = 2.08 cents per 100 yen97 Sep Put 2.47 - Max[97.00 – 95.80 = 1.20, 0] = 1.27 cents per 100 yen9. Assume spot Swiss franc is $0.7000 and the six-month forward rate is $0.6950. What is the minimum price that a six-month American call option with a striking price of $0.6800 should sell for in a rational market? Assume the annualized six-month Eurodollar rate is 3 ½ percent.Solution:Note to Instructor: A complete solution to this problem relies on the boundary expressions presented in footnote 3 of the text of Chapter 7.C a≥Max[(70 - 68), (69.50 - 68)/(1.0175), 0]≥Max[ 2, 1.47, 0] = 2 cents10. Do problem 9 again assuming an American put option instead of a call option.Solution: P a≥Max[(68 - 70), (68 - 69.50)/(1.0175), 0]≥Max[ -2, -1.47, 0] = 0 cents11. Use the European option-pricing models developed in the chapter to value the call of problem 9 and the put of problem 10. Assume the annualized volatility of the Swiss franc is 14.2 percent. This problem can be solved using the FXOPM.xls spreadsheet.Solution:d1 = [ln(69.50/68) + .5(.142)2(.50)]/(.142)√.50 = .2675d2 = d1 - .142√.50 = .2765 - .1004 = .1671N(d1) = .6055N(d2) = .5664N(-d1) = .3945N(-d2) = .4336C e = [69.50(.6055) - 68(.5664)]e-(.035)(.50) = 3.51 centsP e = [68(.4336) - 69.50(.3945)]e-(.035)(.50) = 2.03 cents12. Use the binomial option-pricing model developed in the chapter to value the call of problem 9.The volatility of the Swiss franc is 14.2 percent.Solution: The spot rate at T will be either 77.39¢ = 70.00¢(1.1056) or 63.32¢ = 70.00¢(.9045), where u = e.142 .50= 1.1056 and d = 1/u= .9045. At the exercise price of E= 68, the option will only be exercised at time T if the Swiss franc appreciates; its exercise value would be C uT= 9.39¢ = 77.39¢ - 68. If the Swiss franc depreciates it would not be rational to exercise the option; its value would be C dT = 0.The hedge ratio is h = (9.39 – 0)/(77.39 – 63.32) = .6674.Thus, the call premium is:C0= Max{[69.50(.6674) – 68((70/68)(.6674 – 1) +1)]/(1.0175), 70 – 68}= Max[1.64, 2] = 2 cents per SF.MINI CASE: THE OPTIONS SPECULATORA speculator is considering the purchase of five three-month Japanese yen call options with a striking price of 96 cents per 100 yen. The premium is 1.35 cents per 100 yen. The spot price is 95.28 cents per 100 yen and the 90-day forward rate is 95.71 cents. The speculator believes the yen will appreciate to $1.00 per 100 yen over the next three months. As the speculator’s assistant, you have been asked to prepare the following:1. Graph the call option cash flow schedule.2. Determine the speculator’s profit if the yen appreciates to $1.00/100 yen.3. Determine the speculator’s profit if the yen only appreciates to the forward rate.4. Determine the future spot price at which the speculator will only break even.Suggested Solution to the Options Speculator:1.2. (5 x ¥6,250,000) x [(100 - 96) - 1.35]/10000 = $8,281.25.3. Since the option expires out-of-the-money, the speculator will let the option expire worthless. He will only lose the option premium.4. S T = E + C = 96 + 1.35 = 97.35 cents per 100 yen.。
国际财务管理答案
Solutions for International Corporate FinanceChapter 1 (2)Chapter 2 (4)Chapter 3 (6)Chapter 4 (8)Chapter 5 (12)Chapter 6 (14)Chapter 7 (16)Chapter 8 (18)Chapter 9 (21)Chapter 10 (23)Chapter 11 (26)Chapter 12 (29)Chapter 15. International Business Methods. Snyder Golf Co., a U.S. firm that sells high-quality golf clubs in the U.S., wants to expand internationally by selling the same golf clubs in Brazil.a. Describe the tradeoffs that are involved for each method (such as exporting, direct foreign investment, etc.) that Snyder could use to achieve its goal.ANSWER: Snyder can export the clubs, but the transportation expenses may be high. If could establish a subsidiary in Brazil to produce and sell the clubs, but this may require a large investment of funds. It could use licensing, in which it specifies to a Brazilian firm how to produce the clubs. In this way, it does not have to establish its own subsidiary there.b. Which method would you recommend for this firm? Justify your recommendation. ANSWER: If the amount of golf clubs to be sold in Brazil is small, it may decide to export. However, if the expected sales level is high, it may benefit from licensing. If it is confident that the expected sales level will remain high, it may be willing to establish a subsidiary. The wages are lower in Brazil, and the large investment needed to establish a subsidiary may be worthwhile.8. Comparative Advantage.a. Explain how the theory of comparative advantage relates to the need for international business. ANSWER: The theory of comparative advantage implies that countries should specialize in production, thereby relying on other countries for some products. Consequently, there is a need for international business.b. Explain how the product cycle theory relates to the growth of an MNC.ANSWER: The product cycle theory suggests that at some point in time, the firm will attempt to capitalize on its perceived advantages in markets other than where it was initially established.10. Valuation of Wal-Mart’s International Business. In addition to all of its stores in the U.S., Wal-Mart has 11 stores in Argentina, 24 stores in Brazil, 214 stores in Canada, 29 stores in China, 92 stores in Germany, 15 stores in South Korea, 611 stores in Mexico, and 261 stores in the U.K. Consider the value of Wal-Mart as being composed of two parts, a U.S. part (due to business in the U.S.) and a non-U.S. part (due to business in other countries). Explain how to determine the present value (in dollars) of the non-U.S. part assuming that you had access to all the details of Wal-Mart businesses outside the U.S.ANSWER: The non-U.S. part can be measured as the present value of future dollar cash flows resulting from the non-U.S. businesses. Based on recent earnings data for each store and applying an expected growth rate, you can estimate the remitted earnings that will come from each country in each year in the future. You can convert those cash flows to dollars using a forecasted exchange rate per year. Determine the present value of cash flows of all stores within one country. Then repeat the process for other countries. Then add up all the present values that you estimated to derive a consolidated present value of all non-U.S. subsidiaries.15. International Joint Venture. Anheuser-Busch, the producer of Budweiser and other beers, has recently expanded into Japan by engaging in a joint venture with Kirin Brewery, the largest brewery in Japan. The joint venture enables Anheuser-Busch to have its beer distributed through Kirin’s distribution channels in Japan. In addition, it can utilize Kirin’s facilities to produce beer that will be sold locally. In return, Anheuser-Busch provides information about the American beer market to Kirin.a. Explain how the joint venture can enable Anheuser-Busch to achieve its objective of maximizing shareholder wealth.ANSWER: The joint venture creates a way for Anheuser-Busch to distribute Budweiser throughout Japan. It enables Anheuser-Busch to penetrate the Japanese market without requiring a substantial investment in Japan.b. Explain how the joint venture can limit the risk of the international business.ANSWER: The joint venture has limited risk because Anheuser-Busch does not need to establish its own distribution network in Japan. Thus, Anheuser-Busch may be able to use a smaller investment for the international business, and there is a higher probability that the international business will be successful.c. Many international joint ventures are intended to circumvent barriers that normally prevent foreign competition. What barrier in Japan is Anheuser-Busch circumventing as a result of the joint venture? What barrier in the United States is Kirin circumventing as a result of the joint venture?ANSWER: Anheuser-Busch is able t o benefit from Kirin’s distribution system in Japan, which would not normally be so accessible. Kirin is able to learn more about how Anheuser-Busch expanded its product across numerous countries, and therefore breaks through an “information”barrier.d. Explain how Anheuser-Busch could lose some of its market share in countries outside Japan as a result of this particular joint venture.ANSWER: Anheuser-Busch could lose some of its market share to Kirin as a result of explaining its worldwide expansion strategies to Kirin. However, it appears that Anheuser-Busch expects the potential benefits of the joint venture to outweigh any potential adverse effects.24. Global Competition. Explain why more standardized product specifications across countries can increase global competition.ANSWER: Standardized product specifications allow firms to more easily expand their business across other countries, which increases global competition.Chapter 24. Free Trade. There has been considerable momentum to reduce or remove trade barriers in an effort to achieve “free trade.” Yet, one disgruntled executive of an exporting firm stated, “Free trade is not conceivable; we are always at the mercy of the exchange rate. Any country can use this mechanism to impose trade bar riers.” What does this statement mean?ANSWER: This statement implies that even if there were no explicit barriers, a government could attempt to manipulate exchange rates to a level that would effectively reduce foreign competition. For example, a U.S. firm may be discouraged from attempting to export to Japan if the value of the dollar is very high against the yen. The prices of the U.S. goods from the Japanese perspective are too high because of the strong dollar. The reverse situation could also be possible in which a Japanese exporting firm is priced out of the U.S. market because of a strong yen (weak dollar). [Answer is based on opinion.]8. International Investments. In recent years many U.S.-based MNCs have increased their investments in foreign securities, which are not as susceptible to negative shocks in the U.S. market. Also, when MNCs believe that U.S. securities are overvalued, they can pursue non-U.S. securities that are driven by a different market. Moreover, in periods of low U.S. interest rates, U.S. corporations tend to seek investments in foreign securities. In general, the flow of funds into foreign countries tends to decline when U.S. investors anticipate a strong dollar.a. Explain how expectations of a strong dollar can affect the tendency of U.S. investors to invest abroad.ANSWER: A weak dollar would discourage U.S. investors from investing abroad. It can cause the investors to purchase foreign currency (when investing) at a higher exchange rate than the exchange rate at which they would sell the currency (when the investment is liquidated).b. Explain how low U.S. interest rates can affect the tendency of U.S.-based MNCs to invest abroad.ANSWER: Low U.S. interest rates can encourage U.S.-based MNCs to invest abroad, as investors seek higher returns on their investment than they can earn in the U.S.c. In general terms, what is the attraction of foreign investments to U.S. investors?ANSWER: The main attraction is potentially higher returns. The international stocks can outperform U.S. stocks, and international bonds can outperform U.S. bonds. However, there is no guarantee that the returns on international investments will be so favorable. Some investors may also pursue international investments to diversify their investment portfolio, which can possibly reduce risk.10. Exchange Rate Effects on Trade.a. Explain why a stronger dollar could enlarge the U.S. balance of trade deficit. Explain why a weaker dollar could affect the U.S. balance of trade deficit.ANSWER: A stronger dollar makes U.S. exports more expensive to importers and may reduceimports. It makes U.S. imports cheap and may increase U.S. imports. A weaker home currency increases the prices of imports purchased by the home country and reduces the prices paid by foreign businesses for the home country’s exports. This should cause a decrease in the home country’s demand for imports and an increase in the foreign demand for the home country’s exports, and therefore increase the current account. However, this relationship can be distorted by other factors.b. It is sometimes suggested that a floating exchange rate will adjust to reduce or eliminate any current account deficit. Explain why this adjustment would occur.ANSWER: A current account deficit reflects a net sale of the home currency in exchange for other currencies. This places downward pressure on that home currency’s value. If the currency weakens, it will reduce the home demand for foreign goods (since goods will now be more expensive), and will increase the home export volume (since exports will appear cheaper to foreign countries).c. Why does the exchange rate not always adjust to a current account deficit?ANSWER: In some cases, the home currency will remain strong even though a current account deficit exists, since other factors (such as international capital flows) can offset the forces placed on the currency by the current account.13. Effects of Tariffs. Assume a simple world in which the U.S. exports soft drinks and beer to France and imports wine from France. If the U.S. imposes large tariffs on the French wine, explain the likely impact on the values of the U.S. beverage firms, U.S. wine producers, the French beverage firms, and the French wine producers.ANSWER: The U.S. wine producers benefit from the U.S. tariffs, while the French wine producers are adversely affected. The French government would likely retaliate by imposing tariffs on the U.S. beverage firms, which would adversely affect their value. The French beverage firms would benefit.15. Demand for Exports. A relatively small U.S. balance of trade deficit is commonly attributed toa strong demand for U.S. exports. What do you think is the underlying reason for the strong demand for U.S. exports?ANSWER: The strong demand for U.S. exports is commonly attributed to strong foreign economies or to a weak dollar.Chapter 35. International Financial Markets. Recently, Wal-Mart established two retail outlets in the city of Shenzhen, China, which has a population of 3.7 million. These outlets are massive and contain products purchased locally as well as imports. As Wal-Mart generates earnings beyond what it needs in Shenzhen, it may remit those earnings back to the United States. Wal-Mart is likely to build additional outlets in Shenzhen or in other Chinese cities in the future.a. Explain how the Wal-Mart outlets in China would use the spot market in foreign exchange. ANSWER: The Wal-Mart stores in China need other currencies to buy products from other countries, and must convert the Chinese currency (yuan) into the other currencies in the spot market to purchase these products. They also could use the spot market to convert excess earnings denominated in yuan into dollars, which would be remitted to the U.S. parent.b. Explain how Wal-Mart might utilize the international money market when it is establishing other Wal-Mart stores in Asia.ANSWER: Wal-Mart may need to maintain some deposits in the Eurocurrency market that can be used (when needed) to support the growth of Wal-Mart stores in various foreign markets. When some Wal-Mart stores in foreign markets need funds, they borrow from banks in the Eurocurrency market. Thus, the Eurocurrency market serves as a deposit or lending source for Wal-Mart and other MNCs on a short-term basis.c. Explain how Wal-Mart could use the international bond market to finance the establishment of new outlets in foreign markets.ANSWER: Wal-Mart could issue bonds in the Eurobond market to generate funds needed to establish new outlets. The bonds may be denominated in the currency that is needed; then, once the stores are established, some of the cash flows generated by those stores could be used to pay interest on the bonds.11. Foreign Exchange. You just came back from Canada, where the Canadian dollar was worth $.70. You still have C$200 from your trip and could exchange them for dollars at the airport, but the airport foreign exchange desk will only buy them for $.60. Next week, you will be going to Mexico and will need pesos. The airport foreign exchange desk will sell you pesos for $.10 per peso. You met a tourist at the airport who is from Mexico and is on his way to Canada. He is willing to buy your C$200 for 130 pesos. Should you accept the offer or cash the Canadian dollars in at the airport? Explain.ANSWER: Exchange with the tourist. If you exchange the C$ for pesos at the foreign exchange desk, the cross-rate is $.60/$10 = 6. Thus, the C$200 would be exchanged for 120 pesos (computed as 200 ×6). If you exchange Canadian dollars for pesos with the tourist, you will receive 130 pesos.15. Exchange Rate Effects on Borrowing. Explain how the appreciation of the Japanese yen against the U.S. dollar would affect the return to a U.S. firm that borrowed Japanese yen and used the proceeds for a U.S. project.ANSWER: If the Japanese yen appreciates over the borrowing period, this implies that the U.S. firm converted yen to U.S. dollars at a lower exchange rate than the rate at which it paid for yen at the time it would repay the loan. Thus, it is adversely affected by the appreciation. Its cost of borrowing will be higher as a result of this appreciation.20. Interest Rates. Why do interest rates vary among countries? Why are interest rates normally similar for those European countries that use the euro as their currency? Offer a reason why the government interest rate of one country could be slightly higher than that of the government interest rate of another country, even though the euro is the currency used in both countries.ANSWER: Interest rates in each country are based on the supply of funds and demand for funds for a given currency. However, the supply and demand conditions for the euro are dictated by all participating countries in aggregate, and do not vary among participating countries. Yet, the government interest rate in one country that uses the euro could be slightly higher than others that use the euro if it is subject to default risk. The higher interest rate would reflect a risk premium.21. Forward Contract. The Wolfpack Corporation is a U.S. exporter that invoices its exports to the United Kingdom in British pounds. If it expects that the pound will appreciate against the dollar in the future, should it hedge its exports with a forward contract? Explain.ANSWER: The forward contract can hedge future receivables or payables in foreign currencies to insulate the firm against exchange rate risk. Yet, in this case, the Wolfpack Corporation should not hedge because it would benefit from appreciation of the pound when it converts the pounds to dollars.Chapter 43. Inflation Effects on Exchange Rates. Assume that the U.S. inflation rate becomes high relative to Canadian inflation. Other things being equal, how should this affect the (a) U.S. demand for Canadian dollars, (b) supply of Canadian dollars for sale, and (c) equilibrium value of the Canadian dollar?ANSWER: Demand for Canadian dollars should increase, supply of Canadian dollars for sale should decrease, and the Canadian dollar’s value should increase.12. Factors Affecting Exchange Rates. Mexico tends to have much higher inflation than the United States and also much higher interest rates than the United States. Inflation and interest rates are much more volatile in Mexico than in industrialized countries. The value of the Mexican peso is typically more volatile than the currencies of industrialized countries from a U.S. perspective; it has typically depreciated from one year to the next, but the degree of depreciation has varied substantially. The bid/ask spread tends to be wider for the peso than for currencies of industrialized countries.a. Identify the most obvious economic reason for the persistent depreciation of the peso. ANSWER: The high inflation in Mexico places continual downward pressure on the value of the peso.b. High interest rates are commonly expected to strengthen a country’s currency because they can encourage foreign investment in securities in that country, which results in the exchange of other currencies for that currency. Yet, the peso’s value has declined against the dollar over most years even though Mexican interest rates are typically much higher than U.S. interest rates. Thus, it appears that the high Mexican interest rates do not attract substantial U.S. investment in Mexico’s securities. Why do you think U.S. investors do not try to capitalize on the high interest rates in Mexico?ANSWER: The high interest rates in Mexico result from expectations of high inflation. That is, the real interest rate in Mexico may not be any higher than the U.S. real interest rate. Given the high inflationary expectations, U.S. investors recognize the potential weakness of the peso, which could more than offset the high interest rate (when they convert the pesos back to dollars at the end of the investment period). Therefore, the high Mexican interest rates do not encourage U.S. investment in Mexican securities, and do not help to strengthen the value of the peso.c. Why do you think the bid/ask spread is higher for pesos than for currencies of industrialized countries? How does this affect a U.S. firm that does substantial business in Mexico?ANSWER: The bid/ask spread is wider because the banks that provide foreign exchange services are subject to more risk when they maintain currencies such as the peso that could decline abruptly at any time. A wider bid/ask spread adversely affects the U.S. firm that does business in Mexico because it increases the transactions costs associated with conversion of dollars to pesos, or pesos to dollars.14. Aggregate Effects on Exchange Rates. Assume that the United States invests heavily in government and corporate securities of Country K. In addition, residents of Country K invest heavily in the United States. Approximately $10 billion worth of investment transactions occur between these two countries each year. The total dollar value of trade transactions per year is about $8 million. This information is expected to also hold in the future. Because your firm exports goods to Country K, your job as international cash manager requires you to forecast the value of Country K’s currency (the “krank”) with respect to the dollar. Explain how each of the following conditions will affect the value of the krank, holding other things equal. Then, aggregate all of these impacts to develop an ov erall forecast of the krank’s movement against the dollar.a. U.S. inflation has suddenly increased substantially, while Country K’s inflation remains low. ANSWER: Increased U.S. demand for the krank. Decreased supply of kranks for sale. Upward pressure in the krank’s value.b. U.S. interest rates have increased substantially, while Country K’s interest rates remain low. Investors of both countries are attracted to high interest rates.ANSWER: Decreased U.S. demand for the krank. Increased supply of kranks for sale. Downward pressure on the krank’s value.c. The U.S. income level increased substantially, while Country K’s income level has remained unchanged.ANSWER: Increased U.S. demand for the krank. Upward pressure on the krank’s value.d. The U.S. is expected to impose a small tariff on goods imported from Country K. ANSWER: The tariff will cause a decrease in the United States’ desire for Country K’s goods, and will therefore reduce the demand for kranks for sale. Downward pressure on the krank’s value.e. Combine all expected impacts to develop an overall forecast.ANSWER: Two of the scenarios described above place upward pressure on the value of the krank. However, these scenarios are related to trade, and trade flows are relatively minor between the U.S. and Country K. The interest rate scenario places downward pressure on the krank’s value. Since the interest rates affect capital flows and capital flows dominate trade flows between the U.S. and Country K, the interest rate scenario should overwhelm all other scenarios. Thus, when considering the importance of implications of all scenarios, the krank is expected to depreciate.22. Speculation. Blue Demon Bank expects that the Mexican peso will depreciate against the dollar from its spot rate of $.15 to $.14 in 10 days. The following interbank lending and borrowingin the interbank market, depending on which currency it wants to borrow.a. How could Blue Demon Bank attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy.ANSWER: Blue Demon Bank can capitalize on its expectations about pesos (MXP) as follows:1. Borrow MXP70 million2. Convert the MXP70 million to dollars:MXP70,000,000 × $.15 = $10,500,0003. Lend the dollars through the interbank market at 8.0% annualized over a 10-day period. The amount accumulated in 10 days is:$10,500,000 × [1 + (8% × 10/360)] = $10,500,000 × [1.002222] = $10,523,3334. Repay the peso loan. The repayment amount on the peso loan is:MXP70,000,000 × [1 + (8.7% × 10/360)] = 70,000,000 × [1.002417]=MXP70,169,1675. Based on the expected spot rate of $.14, the amount of dollars needed to repay the peso loan is: MXP70,169,167 × $.14 = $9,823,6836. After repaying the loan, Blue Demon Bank will have a speculative profit (if its forecasted exchange rate is accurate) of:$10,523,333 – $9,823,683 = $699,650b. Assume all the preceding information with this exception: Blue Demon Bank expects the peso to appreciate from its present spot rate of $.15 to $.17 in 30 days. How could it attempt to capitalize on its expectations without using deposited funds? Estimate the profits that could be generated from this strategy.ANSWER: Blue Demon Bank can capitalize on its expectations as follows:1. Borrow $10 million2. Convert the $10 million to pesos (MXP):$10,000,000/$.15 = MXP 66, 666,6673. Lend the pesos through the interbank market at 8.5% annualized over a 30-day period. The amount accumulated in 30 days is:MXP66,666,667 × [1 + (8.5% × 30/360)] = 66,666,667 × [1.007083] = MXP67,138,8894. Repay the dollar loan. The repayment amount on the dollar loan is:$10,000,000 × [1 + (8.3% × 30/360)] = $10,000,000 × [1.006917] = $10,069,1705. Convert the pesos to dollars to repay the loan. The amount of dollars to be received in 30 days (based on the expected spot rate of $.17) is:MXP67,138,889 × $.17 = $11,413,6116. The profits are determined by estimating the dollars available after repaying the loan:$11,413,611 – $10,069,170 = $1,344,44123. SpeculationDiamond Bank expects that the Singapore dollar will depreciate against the dollar from its spotDiamond Bank considers borrowing 10 million Singapore dollars in the interbank market andinvesting the funds in dollars for 60 days. Estimate the profits(or losses) that could be earned from this strategy. Should Diamond Bank pursue this strategy?ANSWER:Borrow S$10,000,000 and convert to U.S. $:S$10,000,000 × $.43 = $4,300,000Invest funds for 60 days. The rate earned in the U.S. for 60 days is:7% × (60/360) = 1.17%Total amount accumulated in 60 days:$4,300,000 × (1 + .0117) = $4,350,310Convert U.S. $ back to S$ in 60 days:$4,350,310/$.42 = S$10,357,881The rate to be paid on loan is:.24 × (60/360) = .04Amount owed on S$ loan is:S$10,000,000 × (1 + .04) = S$10,400,000This strategy results in a loss:S$10,357,881 – S$10,400,000 = –S$42,119Diamond Bank should not pursue this strategy.Chapter 52. Risk of Currency Futures. Currency futures markets are commonly used as a means of capitalizing on shifts in currency values, because the value of a futures contract tends to move in line with the change in the corresponding currency value. Recently, many currencies appreciated against the dollar. Most speculators anticipated that these currencies would continue to strengthen and took large buy positions in currency futures. However, the Fed intervened in the foreign exchange market by immediately selling foreign currencies in exchange for dollars, causing an abrupt decline in the values of foreign currencies (as the dollar strengthened). Participants that had purchased currency futures contracts incurred large losses. One floor broker responded to the effects of the Fed's intervention by immediately selling 300 futures contracts on British pounds (with a value of about $30 million). Such actions caused even more panic in the futures market.a. Explain why the central bank s intervention caused such panic among currency futures traders with buy positions.ANSWER: Futures prices on pounds rose in tandem with the value of the pound. However, when central banks intervened to support the dollar, the value of the pound declined, and so did values of futures contracts on pounds. So traders with long (buy) positions in these contracts experienced losses because the contract values declined.b. Explain why the floor broker s willingness to sell 300 pound futures contracts at the going market rate aroused such concern. What might this action signal to other brokers?ANSWER: Normally, this order would have been sold in pieces. This action could signal a desperate situation in which many investors sell futures contracts at any price, which places more downward pressure on currency future prices, and could cause a crisis.c. Explain why speculators with short (sell) positions could benefit as a result of the central bank s intervention.ANSWER: The central bank intervention placed downward pressure on the pound and other European currencies. Thus, the values of futures contracts on these currencies declined. Traders that had short positions in futures would benefit because they could now close out their short positions by purchasing the same contracts that they had sold earlier. Since the prices of futures contracts declined, they would purchase the contracts for a lower price than the price at which they initially sold the contracts.d. Some traders with buy positions may have responded immediately to the central bank s intervention by selling futures contracts. Why would some speculators with buy positions leave their positions unchanged or even increase their positions by purchasing more futures contracts in response to the central bank s intervention?ANSWER: Central bank intervention sometimes has only a temporary effect on exchange rates. Thus, the European currencies could strengthen after a temporary effect caused by central bank intervention. Traders have to predict whether natural market forces will ultimately overwhelm any pressure induced as a result of central bank intervention. ]。
- 1、下载文档前请自行甄别文档内容的完整性，平台不提供额外的编辑、内容补充、找答案等附加服务。
- 2、"仅部分预览"的文档,不可在线预览部分如存在完整性等问题,可反馈申请退款(可完整预览的文档不适用该条件!)。
- 3、如文档侵犯您的权益，请联系客服反馈,我们会尽快为您处理(人工客服工作时间：9:00-18:30)。
章1跨国财务管理: 概述讲座大纲管理跨国公司面临代理问题跨国公司的治理结构为什么选择冷杉m它追求国际商务比较优势理论不完善的市场理论产品周期理论企业如何从事国际业务国际贸易发牌特许经营合资收购现有业务建立新的外国子公司方法摘要跨国公司的估值模型国内车型评估国际现金流跨国公司周围的不确定性’s 现金流案文的组织12 国际财务管理章节主题本章介绍跨国公司具有与纯粹的国内公司相似的目标, 但机会种类繁多。
随着更多的机会的出现, 潜在的回报增加, 并需要考虑其他形式的风险。
介绍了潜在的好处和风险。
鼓励课堂讨论的主题(一) 跨国公司的适当定义是什么？2。
为什么跨国公司会在国际上扩张？(三) 有什么问题吗？跨国公司在国际上扩张的风险是什么？4. 我的工作是什么？你认为欧洲国家为什么会吸引U.S.公司？5。
为什么纯粹的国内企业必须关注国际环境？点:跨国公司是否应该降低其道德标准, 以在国际上竞争？点: 是的。
当一家总部设在美国的跨国公司在一些国家竞争时, 它可能会遇到一些在那里不允许的商业规范。
U.S.例如, 在竞争政府合同时, 企业可能会向将作出决定的政府官员提供回报。
然而, 在United States, 一家公司有时会带客户进行昂贵的高尔夫出游, 或提供比赛门票。
这和回报没有什么不同。
如果一些国家的回报更大, 跨国公司只有通过匹配竞争对手提供的回报才能竞争。
点: 不可以. 总部设在美国的跨国公司应保持适用于任何国家的标准道德守则, 即使它在外国处于不利地位, 允许可能被视为不道德的活动。
通过这种方式, 跨国公司在全球范围内建立了更高的信誉。
谁是正确的？使用互联网以了解有关此问题的更多信息。
你支持哪种论点？在这个问题上提出自己的看法。
回答: 这个问题经常被讨论。
很容易建议跨国公司应保持标准的道德守则, 但实际上, 这意味着它在某些情况下无法竞争。
例如, 即使它提交了特定外国政府项目的最低出价, 如果没有向外国政府官员支付报酬, 它也不会收到投标。
这个问题尤其让大型项目感到关切, 这些项目可能会给被选定做项目的公司带来大量现金流。
理想的情况是, 跨国公司可以向监督决策过程的人清楚地表明, 它是值得选择的。
如果只有一个决策者没有监督, 跨国公司就无法确保决策符合道德。
但如果决策者必须对监督决策的部门负责, 跨国公司或许能够促使该部门确保这一过程符合道德。
第1章: 跨国财务管理: 概述3对章节结束问题的回答1.跨国公司的代理问题。
a.解释跨国公司的代理问题。
回答：代理问题反映了决策经理与跨国公司所有者之间的利益冲突。
代理费用的发生是为了确保管理人员的行为符合业主的最佳利益。
b.为什么跨国公司的代理成本可能比纯粹的国内公司更高？回答：跨国公司的代理成本通常大于纯粹的国内公司, 原因如下。
首先, 跨国公司在监督遥远的外国子公司的经理方面产生了更大的代理成本。
其次, 在不同文化中培养的外国子公司经理可能不会遵循统一的目标。
第三, 规模较大的跨国公司的庞大规模也会造成大的代理问题。
2.比较优势。
a.解释比较优势理论与国际商业需求的关系。
回答：比较优势理论意味着各国应专门生产, 从而在某些产品上依赖其他国家。
因此, 需要国际业务。
b.解释产品周期理论与跨国公司的发展有何关系。
答案: 产品周期理论表明, 在某个时候, 公司将试图利用其在最初成立的市场以外的市场上的感知优势。
3.不完善的市场。
a.解释不完善市场的存在是如何导致在国外市场设立子公司的。
回答：由于市场不完善, 跨国公司无法轻易和自由地收回资源。
因此, 跨国公司有时必须去资源, 而不是收回资源 (如土地、劳动力等)。
b.如果存在完美的市场, 各国的工资、价格和利率是否会比市场不完善的条件更相似或更不相似？为什么？答复: 如果存在完美的市场, 资源将更具流动性, 因此可以转移到那些更愿意为其付出高昂代价的国家。
随着这种情况的发生, 任何特定国家的资源短缺都将得到缓解, 这些资源的费用在各国之间将类似。
4. 我的工作是什么？国际机遇。
4 国际财务管理a.你认为收购外国公司或授权会给跨国公司带来更大的增长吗？哪种选择可能会有更大的风险？回答：收购通常会带来更大的增长, 但它是风险更大因为它通常需要更大的投资, 一旦进行收购, 决定就不容易推翻。
B。
描述一个场景, 在这种情况下, 公司的规模不受获得国际机会的影响。
答复: 有些公司可能会因为缺乏对国外市场的了解或期望风险过高而避免机会。
因此, 这些公司的规模不受机会的影响。
C。
解释为什么可口可乐和百事可乐等跨国公司仍有许多国际扩张的机会。
答复: 可口可乐和百事可乐仍然有新的国际机遇, 因为各国正处于不同的发展阶段。
一些国家最近刚刚向跨国公司开放了边境。
其中许多国家没有向其消费者提供足够的食品或饮料产品。
5。
由于互联网的国际机会。
a。
是什么因素导致一些公司比其他公司更加国际化？答复: 公司的经营特点 (其生产或销售的产品) 和对国际业务的风险感知将影响公司国际化的程度。
其他几个因素, 如获得资本, 在这方面也可能具有相关性。
劳动密集型的公司可以更容易地利用低工资国家, 而依赖技术进步的公司则无法利用。
B。
就互联网为何可能带来更多的国际业务提出您的意见。
答复: 互联网允许国家之间进行简单和低成本的沟通, 因此企业现在可以通过拥有一个网站与海外潜在客户建立联系。
许多公司使用自己的网站来确定他们销售的产品, 以及每种产品的价格。
这使他们能够轻松地向世界任何地方的潜在进口商宣传他们的产品, 而无需向不同国家邮寄小册子。
此外, 他们还可以增加产品线, 只需修改网站就能改变价格, 这样进口商就能及时了解出口商的情况’通过监控出口商来提供产品信息’的网站定期。
企业还可以利用自己的网站接受网上订单。
一些享誉国际的公司利用自己的品牌在互联网上为产品做广告。
他们可能会利用一些外国的制造商生产他们的一些符合其规格的产品6。
汇率变动的影响.芝加哥的 plak co. 每年都有几家欧洲子公司向其汇出收益。
解释欧元 (许多欧洲国家使用的货币) 的升值将如何影响 plak’它的估值。
回答：普莱克’我们的估值应该会增加, 因为欧元升值将增加欧洲子公司汇出的现金流的美元价值。
7。
国际商务的好处和风险。
作为本章的全面回顾, 确定国际商业增长的可能原因。
然后, 列出可能阻碍国际商业的各种缺点。
第1章: 跨国财务管理: 概述5回答：国际商业的增长可以通过 (1) 获得可以降低成本的外国资源, 或 (2) 进入增加收入的外国市场来刺激。
然而, 国际商业面临汇率波动的风险,和政治风险 (如a可能东道国政府接管、税务法规等。
).8。
评估一个跨国公司。
哈德逊公司U.S.公司, 有一个子公司在Mexico, 那里的政治风险最近增加了。
Hudson’it ' 对其未来收到的比索现金流的最佳猜测没有改变。
然而, 由于政治风险增加, 其估值有所下降。
解释。
回答：跨国公司的估值是预期现金流的现值。
风险的增加导致预期回报较高, 从而降低了预期未来现金流量的现值。
9个。
集中化和代理成本。
对于母公司为其外国子公司或奥克兰公司 (oakland corp.) 做出大多数重大决定的伯克利 (berkley corp.), 该机构的问题是否会更加明显？回答：代理问题将更加明显Oakland因为附属决定与父项发生冲突的可能性较高。
假设母公司试图最大限度地增加股东财富, 母公司的决定应与股东目标相一致。
如果子公司自己作出决定, 代理成本会更高, 因为母公司需要对子公司进行监测, 以确保其决定旨在最大限度地增加股东财富。
10个。
全球竞争。
解释为什么各国更标准化的产品规格可以增加全球竞争。
回答：标准化的产品规格使企业能够更容易地将业务扩展到其他国家, 从而增加全球竞争。
11个。
暴露于 exhange 的比率.mccanna corp。
(a)U.S.公司有一家法国子公司, 生产葡萄酒并出口到欧洲多个国家。
它出售葡萄酒的所有国家都使用欧元作为其货币, 这与France.麦卡纳公司是否面临汇率风险？回答：该子公司及其客户总部设在现在使用欧元作为其货币的国家, 将不再面临汇率风险。
12岁宏与微观主题。
回顾目录, 并指出从第2章到第21章的每一章是否具有宏观或微观视角。
回答：第2章到第8章是宏观的, 第9章到第21章是微观的。
13岁用于开展国际商务的方法。
duve, inc. 希望通过与外国公司签订许可协议或收购外国公司来打入外国市场。
解释与外国公司签订的许可协议与收购外国公司之间在潜在风险和回报方面的差异。
回答：许可证协议的回报潜力有限, 因为外国公司将因许可证协议而获得大部分好处。
然而, 跨国公司的风险有限, 因为它不需要在外国投资大量资金。
6 国际财务管理跨国公司的收购需要大量投资。
如果这项投资不成功, 跨国公司可能难以以合理的价格出售其收购的公司。
因此, 风险更大。
然而, 如果这项投资成功, 所有的好处都是给跨国公司带来的。
14. 国际商业方法。
斯奈德高尔夫公司U.S.公司, 销售高品质的高尔夫球杆在U.S., 希望通过销售相同的高尔夫俱乐部在国际上扩大Brazil.a.描述斯内德为实现其目标而使用的每种方法(如出口、外国直接投资等) 所涉及的权衡。
回答: 斯内德可以出口俱乐部, 但运输费用可能很高。
如果可以在Brazil生产和销售俱乐部, 但这可能需要大量的资金投资。
它可能使用执照, 它指定对巴西公司怎么生产俱乐部。
这样, 它就不必在那里设立自己的子公司。
B。
你为这家公司推荐哪种方法？证明你的建议是有根据的。
答复: 如果要出售的高尔夫球杆数量Brazil是小的, 它可能会决定出口。
但是, 如果预期销售水平很高, 则可能会从许可中受益。
如果有信心预期的销售水平仍将居高不下, 可能愿意成立子公司。
工资较低。
Brazil, 而设立子公司所需的大量投资可能是值得的。
15. 政治风险的影响。
解释为什么政治风险可能会阻碍国际商业。
答复: 政治风险增加了投资外国项目所需的回报率。
如果没有政治风险, 一些外国项目本来是可行的, 但由于政治风险而不可行。
16. 9月11日的影响。
在恐怖主义袭击之后,U.S., 许多跨国公司的估值下降了10% 以上。
解释为什么跨国公司的预期现金流动减少, 即使它们没有直接受到恐怖袭击的打击。
回答：一个跨国公司’中国的现金流可以通过以下方式减少。
首先, 旅行将影响到在旅游相关行业有业务的任何跨国公司。
预计航空公司、酒店和旅游相关行业的业务将出现下滑。
其中许多跨国公司立即宣布裁员。
其次, 这些对旅游相关产业的影响可能会延续到其他行业, 削弱经济。
第三, 由于对一些产品的更严格限制, 国际贸易成本增加。
第四, 一些跨国公司因加强保障雇员而发生的开支。