Problem
A. Why is prediction a prerequisite to policy making?
B. Discuss any benefits you can think of for a company to (i) cross-list its equity shares on more than one national exchange, and (ii) to source new equity capital from foreign investors as well as domestic investors.
C. As an investor, what factors would you consider before investing in the emerging stock market of a developing country?
D. Explain the basic differences between the operation of a currency forward market and a futures market.
E. In order for a derivatives market to function most efficiently, two types of economic agents are needed: hedgers and speculators. Explain.
F. Should a firm hedge? Why or why not?
G. How would you define economic exposure to exchange risk?
H. General Motors exports cars to Spain but the strong dollar against the euro hurts sales of GM cars in Spain. In the Spanish market, GM faces competition from the Italian and French car makers, such as Fiat and Renault, whose operating currencies are the euro. What kind of measures would you recommend so that GM can maintain its market share in Spain.
I. Why might it be easier for an investor desiring to diversify his portfolio internationally to buy depository receipts rather than the actual shares of the company?
J. Describe the differences between foreign bonds and Eurobonds. Also discuss why Eurobonds make up the lion's share of the international bond market.