Reference no: EM132179547
1. Ubiflex Technology
Ubiflex Technology expects to receive 25,000,000 Japanese yen 90 days from now. Ubiflex decides to hedge its position by selling Japanese yen forward. The current spot rate of the yen is $.0079, while the forward rate is $.0085. Ubiflex expects the spot rate in 90 days to be $.0080. How many dollars will Ubiflex receive for the 25,000,000 yen 90 days from now? Show all steps clearly.
2. Suppose that a Richard Mille RM27-03 watch costs €777,000 in Germany and that the current EUR/USD exchange rate is $1.20. One Canadian dollar is worth $0.82 USDs. Calculate the Canadian dollar price of a Richard Mille RM27-03 watch. Show all steps clearly.
3. A U.S. investor buys 500 shares of CEMEX (CEMEXCPO.MX) on the Bolsa Mexicana de Valores (Mexican Stock Exchange) for 6.8 MXN per share in 2009. The price of CEMEX increases to 13 MXN per share in 2010 when this U.S. investor sells. The USD was worth 12.05 MXN when the investor bought CEMEX in 2009. The USD appreciated to 13.7 MXN when the investor sold CEMEX in 2010. What is the U.S. dollar return of this investment to the investor? Show all steps clearly.
4. Who is Shinzo Abe? What is the inflation goal of Abenomics? What effect will Abenomics have on the value of the Yen against the USD according to theory? Explain using a diagram.
Compare and contrast the theoretical effects of Abenomics on the value of the Yen with the real-world experience of Abenomics on the value of the Yen against the U.S. dollar after Abe's election in December 2012.
5. Wisconsin Whiskey and Wurst (3W)
a. 3W is a Wisconsin firm that recently established a European subsidiary with a major Wurst production facility in Munich. The subsidiary was designed to make the wonderful 3W Wurst in Germany to export to America. 3W will sell this Wurst throughout Wisconsin. The subsidiary pays its local employees in Euros. The subsidiary has all of its expenses denominated in Euros. If the Euro strengthens over the next four years, will the value of3W be favorably affected, unfavorably affect, or not affected? Briefly explain.
b. If3W finances its Munich production facility by borrowing in Euros from BNP Bank how will its exchange rate exposure change? Why?
6. Wu Tang Financial
You go to Wu Tang Financial and are given these foreign exchange quotes.
You can buy a euro for 18 pesos.
The bank will pay you 17.5 pesos for a euro.
You can buy a U.S. dollar for 0.9 euros.
The bank will pay you 0.85 Euros for a U.S. dollar.
You can buy a U.S. dollar for 17 Mexican pesos.
The bank will pay you 16.5 Mexican pesos for a U.S. dollar.
You have $1,000,000. Can you use triangular arbitrage to generate a profit? If so, explain the order of the transactions that you would execute, and the profit that you would earn. If you cannot earn a profit from triangular arbitrage, explain why.
7. Short Answer
a. What is definition of the current account?
b. What is definition of the capital and financial account?
c. What is the approximate position of the U.S. trade balance on services?
d. What is the approximate position of the U.S. trade balance on goods and services?
e. What is the approximate position of the U.S. capital and financial account?
f. What was the Gold Standard? How did it affect exchange rates?
g. What was Bretton Woods Agreement? When was Bretton Woods Agreement in effect? How did it affect exchange rates?
8. Suppose that a BMW costs E 45,000 in Germany and that the current USD/EUR exchange rate is .7624. Calculate the dollar price of the BMW.