Question
Chapter 16: International Business Finance
Bonus Assignment (5 points)
1. An American business needs to pay (a) 10,000 Canadian dollars, (b) 2 million yen, and (c) 50,000 Swiss francs to businesses abroad. The Spot rate are
Country
$/Foreign Currency
Canada-Dollar
.8437
Japan-Yen
.004684
Switzerland-franc
.5139
What are the dollar payments to the respective countries?
2. Suppose the exchange rate between U.S. dollars and Japanese yen is $1 US=¥ 79.1 JPY, and the exchange rate between the U.S. dollar and the British pound is $1 US = £0.64 GBP. What is the cross rate of Japanese yen to British pounds? (In other words, how many yen are needed to purchase 1 pound?)
3. Suppose 1 year ago, Miller Company had inventory in Britain valued at 1.5 million Swiss francs. The exchange rate for dollars to Swiss francs was 1 franc=1.15 dollars. Today, the exchange rate is 1 Swiss franc=1.06 U.S. dollars. The inventory in Switzerland is still valued at 1.5 million francs. What is the U.S. dollar gain or loss in inventory value as a result of the change in exchange rates?
4. Suppose 90-day investments in Europe have a 5% annualized return and a 1.25% quarterly (90-day) return. In the United States, 90-day investments of similar risk have a 7% annualized return and a 1.75% quarterly return. In today’s 90-day forward market, 1 euro equals $1.32. If interest rate parity holds, what is the spot exchange rate ($/€)?
5. A McDonald’s Big Mac costs 2.44 yuan in China, but costs $4.20 in the United States. Assuming that purchasing-power parity (PPP) holds, how many Chinese yuan are required to purchase 1 U.S. dollar?
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