Compare transaction exposure and economic exposure
Problem: Transaction versus Economic Exposure. Compare and contrast transaction exposure and economic exposure. Why would an MNC consider examining only its "net" cash flows in each currency when assessing its transaction exposure?
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Problem 1: Suppose the equilibrium real rate is 3% and the expected rate of inflation in the U.S. is 4%. What is the equilibrium nominal interest rate?
You come to work on pay day and hear a rumor that the company cannot meet its payroll obligation. Discuss the information, assuming you have access, you would review to determine if this rumor is true.
Premium Airlines has recently offered to settle claims for a class-action suit, which was originated for alleged price fixing of tickets. The proposed settlement is stated as follows. Draw a decision tree for this situation.
Forward Rate Forecast. Assume that you obtain a quote for a one-year forward rate on the Mexican peso. Assume that Mexico's one-year interest rate is 40 percent, while the U.S. one-year interest rate is 7 percent.
Transaction versus Economic Exposure. Compare and contrast transaction exposure and economic exposure. Why would an MNC consider examining only its "net" cash flows in each currency when assessing its transaction exposure?
Money Market Hedge on Receivables. Assume that Stevens Point Co. has net receivables of 100,000 Singapore dollars in 90 days. The spot rate of the S$ is $.50, and the Singapore interest rate is 2% over 90 days. Suggest how the U.S. firm could impl
Assume that Riverside Corp. from the United States will receive 400,000 pounds in 180 days. Would it be better off using a forward hedge or a money market hedge? Substantiate your answer with estimated revenue for each type of hedge.
Forward Hedge. Would Oregon Co.'s real cost of hedging Australian dollar payables every 90 days have been positive, negative, or about zero on average over a period in which the dollar weakened consistently? What does this imply about the forward
Classify the cost as (1) product or period (2) variable or fixed; and (3) for those that are product cost, as direct materials, direct labor, or manufacturing overhead. Write "not applicable (N/A)" if a category does not apply.
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