Assuming purchasing power parity holds

Assignment Help Financial Management

Reference no: EM131044062

Assume that the export price of a Toyota Corolla from Osaka, Japan is ¥2,150,000. The exchange rate is ¥87.60/$. The forecast rate of inflation in the United States is 2.2% per year and is 0.0% per year in Japan. Use this data to answer the following questions on exchange rate pass through.

1) The export price for the Corolla at the beginning of the year expressed in U.S. dollars $ ?( in 2 decimals).

2) Assuming purchasing power parity holds, the exchange rate at the end of the year will be ¥/$ ? ( in 2 decimals).

3) Assuming 100% pass-through of exchange rate, the dollar price of a Corolla be $ at the end of the year ?( in 2 decimals).

4) Assuming 75% pass-through of exchange rate, the dollar price of a Corolla be $ at the end of the year ? ( in 2 decimals).

Reference no: EM131044062

Questions Cloud

Dramatic expansion of merits production capacity : Sara Lehn, chief financial officer of Merit Enterprise Corp., was reviewing her presentation one last time before her upcoming meeting with the board of directors. Merit’s business had been brisk for the last 2 years, and the company’s CEO was pushin..

Inverse relationship between bond prices and yields : There is an inverse relationship between bond prices and yields. This inverse relationship will be demonstrated by calculating bond prices to show that interest rates move inversely: if yields rise, then bond prices fall. Bonds will be sold either at..

Coupon bond-what is the yield to call of the bond : A 6.70 percent coupon bond with 28 years left to maturity can be called in nine years. The call premium is one year of coupon payments. It is offered for sale at $1,136.95. What is the yield to call of the bond?

Calculate the NPV for each option available for the project : The manager for a growing firm is considering the launch of a new product. If the product goes directly to market, there is a 60 percent chance of success. For $176,000, the manager can conduct a focus group that will increase the product’s chance of..

Assuming purchasing power parity holds : Assume that the export price of a Toyota Corolla from Osaka, Japan is ¥2,150,000. The exchange rate is ¥87.60/$. The forecast rate of inflation in the United States is 2.2% per year and is 0.0% per year in Japan. The export price for the Corolla at t..

Stocks portfolio weights beta expected return : Refer to the following table for the next four problems: Stocks Portfolio Weights Beta Expected Return σ2(r) A 0.25 0.50 0.40 0.07 B 0.25 0.50 0.25 0.05 C 0.50 1.00 0.21 0.07 σ2(rm) = 0.06 a. What is the residual variance of each of the forgoing stoc..

One reason why firm might consider using bonds to finance : One reason why a firm might consider using bonds to finance is -

Determine the price of the bonds : Manufacturing USA has just signed a contract to buy equipment from German Car Industry, for 5,000,000 euros. The purchase was made in April with payment due three months later in July. Manufacturing USA's CEO is considering hedging strategies to redu..

Explain why businesses develop information systems : Explain why businesses develop information systems. Also, point out some of the wrong reasons businesses sometimes cite for developing information systems and support your answer with examples. Your response should be at least 200 words in length.

User Account

All Pages